<PAGE>

                                                                      Exhibit 13

SELECTED FINANCIAL HIGHLIGHTS - OPERATING BASIS

<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Prepared on an FTE basis                         1998      1997      1996      1995      1994
-----------------------------------------------------------------------------------------------
<S>                                            <C>        <C>       <C>       <C>       <C>    
FOR THE YEAR (a)
Net interest income                            $  3,905   $ 3,739   $ 3,498   $ 3,118   $ 3,144
Noninterest income                                3,237     2,456     2,333     1,939     1,630
Total revenue                                     7,142     6,195     5,831     5,057     4,774
Noninterest expense                               4,056     3,535     3,512     3,090     3,036
Provision for credit losses                         470       322       213       101        65
Net income                                        1,576     1,377     1,221     1,108       993
-----------------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings (a)                             $   2.69   $  2.38   $  2.02   $  2.02   $  1.82
Diluted earnings (a)                               2.60      2.31      1.98      1.81      1.68
Market price (year-end)                           44.69     37.56     24.94     20.38     16.19
Cash dividends declared                            1.00       .92       .87       .82       .70
Book value (year-end)                             15.31     13.68     12.04     11.01      9.94
-----------------------------------------------------------------------------------------------
AT YEAR-END
Assets                                         $104,382   $91,047   $89,650   $87,955   $83,608
Securities                                       10,792     9,362     8,680    19,331    21,141
Loans                                            69,396    62,565    59,861    52,566    46,687
Reserve for credit losses                         1,552     1,432     1,488     1,321     1,496
Deposits                                         69,678    63,735    67,071    57,122    55,528
Short-term borrowings                             9,312     7,505     4,194    13,332    13,038
Long-term debt                                    8,820     4,500     5,114     6,481     5,931
Total stockholders' equity                        9,409     8,452     7,790     6,667     5,708
-----------------------------------------------------------------------------------------------
RATIOS
Return on average common equity (a)               18.61%    19.45%    17.68%    16.55%    17.63%
Return on average assets (a)                       1.61      1.59      1.40      1.29      1.21
Common dividend payout ratio                      38.34     36.32     40.64     79.22     35.86
Net interest margin                                4.63      5.01      4.68      4.03      4.23
Efficiency ratio                                   56.7      57.0      60.2      61.1      63.5
Common equity-to-assets (year-end)                 8.35      8.52      7.63      7.13      6.16
Average total equity-to-assets                     9.07      8.76      8.50      7.96      7.33
-----------------------------------------------------------------------------------------------
</TABLE>

(a)   Operating earnings exclude the impact of merger and restructuring-related
      charges as well as other special items.

SUMMARY OF EARNINGS

<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Prepared on an FTE basis                         1998      1997      1996      1995      1994
-----------------------------------------------------------------------------------------------
<S>                                            <C>        <C>       <C>       <C>       <C>    
Net interest income                            $  3,905   $ 3,739   $ 3,498   $ 3,118   $ 3,144
Noninterest income                                3,237     2,631     2,333     1,939     1,654
Total revenue                                     7,142     6,370     5,831     5,057     4,798
Noninterest expense                               4,129     3,715     3,512     3,755     3,221
Provision for credit losses                         470       322       213       101        65
Net income                                        1,532     1,367     1,221       679       890

Basic earnings per share                       $   2.61   $  2.37   $  2.02   $   .91   $  1.62
Diluted earnings per share                         2.52      2.30      1.98       .85      1.50
Return on average common equity                   18.07%    19.30%    17.68%     9.93%    15.74%
Return on average assets                           1.56      1.58      1.40       .79      1.08
-----------------------------------------------------------------------------------------------
</TABLE>

[The following tables are represented as bar charts in the printed material.]

Diluted Earnings Per Share
PRESENTED ON AN OPERATING BASIS

 1994    1995    1996    1997    1998
------  ------  ------  ------  ------
$ 1.68  $ 1.81  $ 1.98  $ 2.31  $ 2.60

Market Capitalization
(DOLLARS IN BILLIONS)

 1994    1995    1996    1997    1998
------  ------  ------  ------  ------
$  9.3  $ 11.7  $ 14.5  $ 21.4  $ 26.3
------  ------  ------  ------  ------

<PAGE>

FINANCIAL TABLE OF CONTENTS

21    Management's Discussion and Analysis

40    Management's Report on Financial Statements

41    Report of Independent Auditors

      CONSOLIDATED FINANCIAL STATEMENTS

42    Consolidated Statements of Income

43    Consolidated Balance Sheets

44    Consolidated Statements of Changes in Stockholders' Equity

45    Consolidated Statements of Cash Flows

46    Notes to Consolidated Financial Statements

      SUPPLEMENTAL FINANCIAL INFORMATION

65    Rate/Volume Analysis

65    Quarterly Summarized Financial Information

66    Consolidated Average Balances/Interest Earned-Paid/Rates 1994-1998

66    Common Stock Price and Dividend Information

67    Loan Maturity

67    Interest Sensitivity of Loans Over One Year

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

FINANCIAL OVERVIEW

Fleet Financial Group (Fleet or the corporation) reported operating earnings of
$1.58 billion, or $2.60 per diluted share, for 1998, a 14% increase compared
with $1.38 billion, or $2.31 per diluted share, earned in 1997. Return on assets
(ROA) and return on common equity (ROE) on an operating basis were 1.61% and
18.61%, respectively, in 1998, compared to 1.59% and 19.45%, respectively, in
1997. Net income for 1998 was $1.53 billion, or $2.52 per diluted share,
compared with $1.37 billion, or $2.30 per diluted share in 1997. ROA and ROE
during 1998 were 1.56% and 18.07%, respectively, compared with 1.58% and 19.30%,
respectively, for 1997. All common share amounts and associated ratios were
adjusted to reflect the corporation's two-for-one common stock split which was
effective October 7, 1998.

      Increases in both net income and earnings per share during 1998 primarily
reflect strong results achieved from the corporation's franchise businesses, as
well as companies acquired in 1998 (The Quick & Reilly Group, Inc., the consumer
credit card business of Advanta and Columbia Management Company).

      Net interest income on a fully taxable equivalent (FTE) basis totaled $3.9
billion for 1998 and $3.7 billion for 1997. The increase was principally
attributable to a $10 billion increase in average earning assets, due largely to
an 11% increase in average loans, which includes strong growth in our commercial
loan portfolio and the acquisition of the credit card operations of Advanta. The
net interest margin for 1998 was 4.63%, a decline from 5.01% reported in 1997.
The decrease in net interest margin was primarily attributable to narrowed
margins due to the corporation's growth in core commercial loans, combined with
the acquisitions of lower rate spread activity at The Quick & Reilly Group, Inc.
(Quick & Reilly) and credit cards purchased from Advanta.

      The provision for credit losses was $470 million in 1998, compared to $322
million in 1997. The increase in provision was due principally to increased
credit card charge-offs as a result of higher levels of credit card receivables
due to the acquisitions of various credit card portfolios.

      Noninterest income increased over $600 million to $3.2 billion in 1998.
Increases were noted in nearly all core revenue categories including investment
services, capital markets and credit cards. These increases reflect growth in
the corporation's core businesses, the impact of recent acquisitions, and a
strong equity market. Fee revenue represented 45% of total 1998 revenue compared
to 36% on an operating basis in 1997, excluding the impact of the Quick & Reilly
acquisition that was accounted for as a pooling-of-interests.

      Noninterest expense totaled $4.1 billion for 1998, compared with $3.7
billion in 1997, an increase of 11%, resulting primarily from acquisitions.
Excluding these acquisitions, noninterest expense would have been relatively
flat compared to 1997. The combination of increasing revenues and modest expense
growth positively impacted the corporation's efficiency ratio which improved to
56.7%.

      Total loans at December 31, 1998, were $69.4 billion, an increase of 11%,
compared with $62.6 billion at December 31, 1997. The increase was attributable
to strong loan growth in the commercial and industrial (C&I) and lease financing
portfolios, as well as higher levels of credit card receivables as a result of
various portfolio acquisitions, offset by a slight decline in the commercial
real estate portfolio.

      Total deposits increased $5.9 billion to $69.7 billion at December 31,
1998. The increase was due principally to a $4.8 billion increase in money
market deposits as a result of rates aimed at attracting new sources of funds.

Dividends Declared

 [The following table was represented as a bar chart in the printed material.]

                         1994          $ .70
                         1995          $ .82
                         1996          $ .87
                         1997          $ .92
                         1998          $1.00

Management's discussion and analysis may contain forward-looking statements that
are provided to enhance the reader's ability to see the corporation's
anticipated financial performance through the eyes of management. However, such
performance involves risks and uncertainties, which may cause actual results to
differ materially from those expressed in such forward-looking statements. A
more complete discussion of these risks and uncertainties will be contained in
Fleet's Form 10-K for the year ended December 31, 1998.

ACQUISITIONS

Consistent with Fleet's strategy to combine the strengths of a leading regional
bank with the national distribution capabilities of a diversified financial
services company, the corporation announced and/or completed several key
acquisitions and new initiatives during 1998.

      The acquisitions included Quick & Reilly and the consumer credit card
operations of Advanta, both completed in February of 1998. The acquisition of
Quick & Reilly, one of the country's largest discount brokerage firms with a
nationwide network of 118 investor centers, provides the corporation with four
strong, vertically integrated units, consisting of discount brokerage, including
securities trading over the Internet; correspondent clearing; New York Stock
Exchange (NYSE) specialist; and Nasdaq market-making capabilities. The
corporation also purchased Merrill Lynch Specialists, Inc. (MLSI), a NYSE
specialist firm, during the fourth quarter of 1998. The acquisitions of Quick &
Reilly and MLSI make the corporation the leading specialist firm on the NYSE.
Since the Quick & Reilly acquisition was accounted for under the
pooling-of-interests method of accounting, all prior periods have been restated
to include Quick & Reilly's financial information.


                                                                              21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

      The acquisition of the consumer credit card operations of Advanta, along
with the purchase of credit card receivables from Crestar Financial and
Household International, Inc. place Fleet as the eighth largest issuer of credit
cards, with approximately 8 million credit card customers and $14.5 billion in
managed credit card receivables.

      New investments included a 35% stake in Oechsle International Advisors,
L.P. (Oechsle), a leading international investment advisor with approximately
$13 billion in assets under management, a 20% ownership in Parallel Capital
Corporation (Parallel), an independent commercial mortgage conduit with a
national network of lending offices, and the recently completed acquisition of
Sanwa Business Credit (Sanwa), a leasing and asset-based lending company with
approximately $6 billion in assets. The Parallel and Oechsle investments closed
in the third and fourth quarters of 1998, respectively. The Sanwa acquisition
closed on February 1, 1999.

      New initiatives included the formation of the High Yield Securities Group
and the Global Lease Finance unit. The Global Lease Finance unit complements
Fleet Capital Leasing's current capital markets activities and expands its
product capabilities in the market for large-lease transactions.

      These acquisitions and new initiatives strengthen Fleet's competitive
position in higher-growth, higher-return businesses and advance Fleet's strategy
of accelerating revenue growth and diversifying earnings sources by both
business line and geography while achieving a more equal balance of fee-based
versus spread revenues. Furthermore, these acquisitions enhance Fleet's
capabilities in technology and information management, marketing and new product
development, and enable Fleet to offer additional products and services to our
customers.

INCOME STATEMENT ANALYSIS

Net Interest Income

Year ended December 31
FTE basis
Dollars in millions                             1998          1997          1996
================================================================================
Interest income                               $6,765        $6,091        $6,028
Tax-equivalent adjustment                         36            39            36
Interest expense                               2,896         2,391         2,566
--------------------------------------------------------------------------------
Net interest income                           $3,905        $3,739        $3,498
================================================================================

Net interest income on an FTE basis totaled $3.9 billion for the year ended
December 31, 1998, compared with $3.7 billion for 1997. The $166 million
increase was principally the result of strong C&I loan growth, selected credit
card portfolio purchases, and a higher level of securities. 

Net Interest Margin and Interest-Rate Spread

Year ended December 31                        1998                 1997
FTE basis                            Average                Average
Dollars in millions                  Balance        Rate    Balance        Rate
===============================================================================
Securities                           $10,343        6.59%   $ 8,674        6.73%
Loans                                 66,419        8.58     60,076        8.68
Due from brokers/dealers               3,765        4.89      2,884        4.62
Mortgages held for resale              2,623        7.05      1,413        7.65
Other                                  1,153        4.48      1,597        5.74
-------------------------------------------------------------------------------
Total interest-earning assets         84,303        8.07     74,644        8.21
-------------------------------------------------------------------------------
Deposits                              50,572        3.63     47,514        3.48
Short-term borrowings                  8,400        4.76      5,266        4.69
Due to brokers/dealers                 4,501        4.75      3,463        4.39
Long-term debt                         6,261        7.15      4,608        7.34
-------------------------------------------------------------------------------
Interest-bearing liabilities          69,734        4.15     60,851        3.93
-------------------------------------------------------------------------------
Interest-rate spread                                3.92                   4.28
Interest-free sources of funds        14,569                 13,793
-------------------------------------------------------------------------------
Total sources of funds               $84,303        3.44%   $74,644        3.20%
-------------------------------------------------------------------------------
Net interest margin                                 4.63%                  5.01%
===============================================================================

Net interest margin is a measurement of how effectively the corporation manages
the difference between the yield on earning assets and the rate paid on funds
used to support those assets, as well as the overall mix of interest-earning
assets and interest-bearing liabilities.

      Net interest margin is affected by several factors, including fluctuations
in the overall interest-rate environment, funding strategies of the corporation,
the mix of interest-earning assets, interest-bearing liabilities and
noninterest-bearing liabilities, as well as interest-rate derivatives that are
used to manage interest-rate risk.

      The net interest margin for 1998 declined 38 basis points to 4.63%. The
decrease in net interest margin was primarily attributable to narrowed margins
due to the corporation's growth in core commercial loans, combined with the
acquisitions of lower rate spread activity at Quick & Reilly and credit cards
purchased from Advanta.

      Average securities increased $1.6 billion in 1998, due to Fleet's efforts
to maintain a relatively neutral interest-rate-sensitive position. The yield on
securities declined slightly as a result of a lower interest-rate environment.

      Average loans increased $6.3 billion to $66.4 billion, or to nearly 80% of
average interest-earning assets in 1998, due primarily to the strong growth in
commercial loans, principally in middle-market lending and asset-based lending,
leases, and selected credit card portfolio purchases.

      Average due from brokers/dealers and due to brokers/dealers increased $881
million and $1,038 million, respectively, as a result of increased match book
activity and funding of customers' margin accounts at Quick & Reilly.


22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

      Average mortgages held for resale increased $1.2 billion, or 86%, due to
increased loan production at Fleet Mortgage. The yield has declined by 60 basis
points as a result of a lower mortgage-rate environment.

      Average interest-bearing deposits increased $3.1 billion to $50.6 billion
in 1998, primarily the result of increased money market deposits. The interest
rate paid on these interest-bearing deposits increased to 3.63% in 1998 from
3.48% in 1997. The increase in the cost of deposits reflects a shift in the mix
of deposits as a result of funding asset growth with higher-cost wholesale
deposits, as well as the corporation paying more competitive rates on
higher-yielding money market deposits.

      The $3.1 billion increase in average short-term borrowings is attributable
to an increase in both federal funds purchased and treasury, tax and loan
borrowings as the corporation utilized these favorably priced funding vehicles
to fund asset growth. The $1.7 billion increase in long-term debt was due
primarily to net increases in senior and subordinated debt and the issuance of
capital securities. The 19 basis point decrease in the funding rate was due to
additional debt issued by the corporation in order to lock in longer-term
funding at lower interest rates.

      The contribution to the net interest margin from interest-free sources of
funds during 1998 was 71 basis points, consistent with 1997.

Noninterest Income

Year ended December 31
Dollars in millions                                 1998        1997        1996
================================================================================
Investment services revenue                       $  851      $  696      $  634
Banking fees and commissions                         748         708         601
Capital markets revenue                              530         326         269
Processing-related revenue                           457         473         503
Credit card revenue                                  391          62          59
Gain from branch divestitures                         --          --          92
Other noninterest income                             260         191         175
--------------------------------------------------------------------------------
Total noninterest income before net
 gains on sales of business units                  3,237       2,456       2,333
Net gains on sales of business units                  --         175          --
--------------------------------------------------------------------------------
Total noninterest income                          $3,237      $2,631      $2,333
================================================================================

As a result of intensified competition and changing customer needs in the
banking industry, Fleet has made strategic decisions directed at future
revenue-producing activities. Throughout the past several years, the corporation
has developed new products and service lines and broadened existing lines via
acquisitions to provide additional revenue streams to complement Fleet's
traditional banking products and services. These product lines include mutual
funds and annuity products, venture capital, direct banking, corporate finance,
brokerage, investment management, and credit cards. 

      Operating noninterest income totaled $3.24 billion for 1998, up 32% when
compared to $2.46 billion for 1997. This increase reflects continued growth in
fee revenue businesses and the impact of the strategic acquisitions described
earlier.

Investment Services Revenue

Year ended December 31
Dollars in millions                                   1998       1997       1996
================================================================================
Investment management revenue                         $523       $397       $364
Brokerage fees and commissions                         328        299        270
--------------------------------------------------------------------------------
Total investment services revenue                     $851       $696       $634
================================================================================

Investment services revenue, which includes investment management revenue as
well as brokerage fees and commissions revenue, increased $155 million, or 22%,
in 1998 to $851 million.

Investment Management Revenue

Year ended December 31
Dollars in millions                                         1998    1997    1996
================================================================================
Private clients group                                       $216    $200    $181
Columbia Management Company                                   98      --      --
Retail investments                                            79      62      46
Retirement plan services                                      66      63      59
Not-for-profit institutional services                         50      47      41
Other                                                         14      25      37
--------------------------------------------------------------------------------
Total                                                       $523    $397    $364
================================================================================

Investment management revenue rose 32% in 1998 to $523 million. The improvement
was due largely to the acquisition of Columbia Management Company (Columbia),
record sales of Fleet's Galaxy Mutual Funds in 1998, combined with growth in the
overall value of assets under management and administration that was
substantially aided by a strong equity market. Assets under management increased
from $77 billion at December 31, 1997 to $84 billion at December 31, 1998.

      Brokerage fees and commissions revenue increased $29 million, or 10%, due
to increased customer trading volume at the corporation's brokerage subsidiary,
Quick & Reilly, as a result of the strong performance in the equity markets.

      Banking fees and commissions, which includes fees received for cash
management, deposit accounts, electronic banking fees and other fees, increased
$40 million, or 6%, to $748 million. The increase was due principally to the
development of new product packaging and fee schedules, as well as targeted
marketing efforts.

Capital Markets Revenue

Year ended December 31
Dollars in millions                                     1998      1997      1996
================================================================================
Venture capital revenue                                 $149      $ 71      $106
Brokerage market-making revenue                          135       100        59
Foreign exchange/interest-rate products                   74        49        34
Securities gains                                          74        33        43
Corporate finance fees                                    54        47         6
Securities trading gains                                  44        26        21
--------------------------------------------------------------------------------
Total capital markets revenue                           $530      $326      $269
================================================================================


                                                                              23
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Capital markets revenue increased $204 million, or 63%, to $530 million for the
year ended December 31, 1998. This increase was driven by significant gains
pertaining to venture capital investments, brokerage market-making activities,
higher securities gains and robust foreign exchange and interest-rate product
revenue.

      The gains on the investments of Fleet Private Equity, the corporation's
venture capital business, increased by $78 million in 1998 when compared with
1997 as a result of the strength in the equity markets. The corporation's
ability to continue to experience increases in the value of these venture
capital investments depends on a variety of factors, including the condition of
the economy and equity markets. Thus, the likelihood of such gains in the future
cannot be predicted.

      Brokerage market-making revenue increased $35 million, or 35%, to $135
million in 1998 as a result of market volatility and increased volume reflecting
the corporation's purchase of an over-the-counter market-maker in March 1997.

      Foreign exchange/interest-rate products revenue increased $25 million, or
51%, to $74 million in 1998. Strong foreign exchange and interest-rate product
activities were primarily the result of customers locking in their interest-rate
and foreign exchange risk during volatile financial markets. Also contributing
to the rise in capital markets revenue were increases in securities trading
gains and securities gains due to the favorable interest-rate environment.

Processing-Related Revenue

Year ended December 31
Dollars in millions                                   1998       1997       1996
================================================================================
Mortgage banking revenue, net                         $258       $327       $372
Student loan servicing fees                            121        101         99
Other                                                   78         45         32
--------------------------------------------------------------------------------
Total processing-related revenue                      $457       $473       $503
================================================================================

Processing-related revenue decreased $16 million to $457 million in 1998, from
$473 million in 1997. The decrease was a result of a $69 million decrease in net
mortgage banking revenue offset in part by increases in student loan servicing
fees and other processing-related fees. Student loan servicing fees increased
$20 million, or 20%, at AFSA Data Corporation (AFSA), the corporation's student
loan servicing subsidiary, as accounts serviced increased 18% to 6.5 million in
1998. Other processing-related revenue increased $33 million, due principally to
the addition of a healthcare processing unit during 1998.

Mortgage Banking Revenue, Net

Year ended December 31
Dollars in millions                                1998        1997        1996
===============================================================================
Net loan servicing revenue                        $ 456       $ 450       $ 395
Mortgage production revenue                         201         115         132
Gains on sales of mortgage servicing                 34          10          33
Amortization/Impairment charge                     (433)       (248)       (188)
-------------------------------------------------------------------------------
Total mortgage banking revenue, net               $ 258       $ 327       $ 372 
===============================================================================

Net mortgage banking revenue of $258 million in 1998 decreased $69 million from
the $327 million recorded in 1997. The decrease in net mortgage banking revenue
was due principally to increased mortgage servicing rights (MSRs) amortization,
a $75 million impairment charge taken as a result of increased refinancings in a
lower mortgage-rate environment, as well as the sale of Option One in 1997,
which contributed $40 million of mortgage banking revenue, primarily mortgage
production revenue, in 1997. Excluding the impact of the impairment charge in
1998 and the Option One revenue contribution in 1997, mortgage banking revenue
actually increased 16%, driven by strong mortgage production revenue as a result
of record loan production volume of nearly $36 billion in 1998.

      Mortgage servicing rights amortization increased $110 million to $358
million in 1998. The level of amortization increased due to an acceleration in
prepayments resulting from a decline in mortgage interest rates. Since mortgage
servicing rights are an interest-rate-sensitive asset, the value of the
corporation's mortgage servicing portfolio and related mortgage banking revenue
may be adversely impacted if mortgage interest rates decline and actual or
expected loan prepayments increase. For additional information regarding
prepayment risk refer to the Asset-Liability Management discussion in
Management's Discussion and Analysis.

      Credit card revenue increased $329 million to $391 million in 1998,
primarily the result of the acquisition of the consumer credit card operations
of Advanta in February 1998. As part of this acquisition, the corporation
acquired nearly $10 billion of securitized credit card receivables that are
currently serviced by Fleet. As a result of these securitizations, the
corporation recognizes securitization income, servicing revenue, interchange
fees, and amortization of deferred origination costs as the primary components
of credit card revenue.

      Other noninterest income increased $69 million to $260 million in 1998,
due primarily to revenues resulting from acquisitions.

Noninterest Expense

Year ended December 31
Dollars in millions                                 1998        1997        1996
================================================================================
Employee compensation and benefits                $1,927      $1,752      $1,735
Equipment                                            307         317         300
Occupancy                                            298         294         293
Intangible asset amortization                        227         169         140
Legal and other professional                         151         118         136
Marketing                                            132         109         106
Printing and mailing                                  95          79          81
Telephone                                             92          78          89
Other                                                827         774         632
--------------------------------------------------------------------------------
Total noninterest expense, excluding
 merger-related charges                            4,056       3,690       3,512
Merger-related charges                                73          25          --
--------------------------------------------------------------------------------
Total noninterest expense                         $4,129      $3,715      $3,512
================================================================================


24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Critical to Fleet's goals of maximizing long-term profitability and 
increasing shareholder value is the corporation's expense management 
strategy. The corporation has implemented various programs in the past 
several years to reduce expenses. These expense management programs will 
continue to be an ongoing process used to help Fleet meet its goals. The 
corporation's successful expense management, coupled with revenue growth, is 
illustrated by the improvement in the efficiency ratio which decreased 30 
basis points from 1997 to 56.7% in 1998. 

Efficiency Ratio

 [The following table was represented as a bar chart in the printed material.]

                         1994          63.5%
                         1995          61.1%
                         1996          60.2%
                         1997          57.0%
                         1998          56.7%

Total noninterest expense was $4.13 billion in 1998 and $3.72 billion in 1997.
The $414 million, or 11%, increase was due primarily to various acquisitions,
new initiatives, as well as growth in selected business areas. Excluding
acquisitions, noninterest expense was relatively flat when compared to 1997.

      Employee compensation and benefits increased $175 million during 1998, due
to increasing levels of compensation expense primarily attributable to
acquisitions, the newly formed business units, as well as increases in
compensation expense related to incentives at business units with strong revenue
growth. As a result of the acquisitions and new business initiatives, full-time
equivalent staff increased from 33,739 at December 31, 1997 to 35,612 at
December 31, 1998.

      Intangible asset amortization increased $58 million to $227 million from
1997 due to the acquisitions of Columbia and the consumer credit card operations
of Advanta, as well as additional goodwill recorded in 1998, pertaining to the
NatWest earnout agreement. Intangible asset amortization will increase in 1999
as a result of 1998 acquisition activity and additional earnout payments.

      Legal and other professional expense increased $33 million during 1998,
due to the aforementioned acquisitions and other initiatives. Marketing,
telephone, and printing and mailing expenses increased as a result of
promotional mailings and the day-to-day operations of the corporation's
processing-related businesses.

IMPACT OF THE YEAR 2000

The corporation's Year 2000 project continues to be directed by an Executive
Management Steering Committee consisting of its President and Vice Chairmen. The
committee provides direct oversight of the Year 2000 initiative and continues to
be updated monthly on the project's progress. The corporation's Board of
Directors receives formal project updates at least quarterly.

      The corporation has completed its assessment of Year 2000 issues,
developed a plan, and arranged for the required resources to complete the
necessary remediation efforts for both information technology and
non-information technology systems. The corporation will continue to utilize
both internal and external resources to appropriately prepare Fleet for the Year
2000. Additionally, the corporation continues to work on high-priority new
business technological initiatives that it deems critical to its ongoing
business success.

      The corporation has made significant progress in remediating and testing
its information systems. All Fleet mission-critical systems have been
remediated, tested, and returned to production or are in final testing.
Additionally, 97% of all systems have been remediated, tested, and returned to
production. This activity continues to track in accordance with the original
plan. The corporation has established a separate test environment to accommodate
its Year 2000 testing activity and the anticipated need to test with select
customers and other third parties during 1999.

      The corporation relies on several third party service providers for key
business processes. It continues to work closely with these companies to monitor
the progress of their Year 2000 efforts. The corporation's senior management has
conducted on-site visits and in many cases follow-up discussions with its most
critical service providers to further assess their Year 2000 readiness. In
addition, the corporation continues to receive written and verbal verification
from its significant third party service providers and vendors as to their Year
2000 readiness.

      The corporation began Year 2000 testing with several of these key vendors
and third parties in the third quarter of 1998 and plans to substantially
complete testing by the end of the second quarter of 1999. Validation of Year
2000 readiness of all the corporation's vendors continues with a particular
focus on the readiness and alternatives, where possible, for vendors that have
been identified as critical.

      Until and after the Year 2000 rollover takes place, there can be no
assurance that Year 2000-related problems will not occur. Despite the
corporation's efforts to identify and address Year 2000 issues, such issues
present risks to the corporation, including business disruptions and financial
losses.

      The corporation has previously established business resumption plans for
its lines of business and subsidiaries. These plans have been reviewed and where
appropriate are being enhanced to address potential Year 2000 failure scenarios.
This process will be completed by the second quarter of 1999. In addition, a
corporate-wide Year 2000 Event Plan has been developed to govern the
corporation's activities prior to, during and after the calendar rollover to
2000. Specific plans developed for each of Fleet's lines of business and
subsidiary companies are being reviewed and validated by an Event Plan Steering
Committee consisting of management from various areas of the corporation.


                                                                              25
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

      The corporation's credit risk associated with borrowers may increase to
the extent borrowers are not adequately prepared for the Year 2000. As a result,
there may be increases in the corporation's problem loans and credit losses
subsequent to Year 2000. The corporation cannot quantify the potential impact of
any such losses at this time. However, to mitigate the risk, the corporation has
assessed the Year 2000 readiness of 98% of the material business relationships
to which it extends credit. The assessment sought to determine the customers'
level of Year 2000 preparedness and their level of dependency on technology.
Factored together with the overall credit rating of the customer, the
corporation identified customers that present an unacceptable risk to the
corporation due to Year 2000. Of the material relationships the corporation has
assessed, less than 1% have presently been identified as unacceptable in their
level of Year 2000 preparedness and will be required to take action to mitigate
their Year 2000 risk. The corporation will actively reassess the readiness of
customers receiving the unacceptable rating on a quarterly basis throughout 1999
to ensure that the proper steps are being taken.

      The corporation continues to approximate that the cost of the Year 2000
project will be $150 million. The corporation incurred $75 million of expenses
in 1998 and $92 million since the inception of this project.

INCOME TAXES

The corporation recorded income tax expense in the amount of $975 million for
1998 compared with $927 million for 1997. The effective tax rate was 38.9% in
1998 compared with 40.4% in 1997. The decrease in the effective tax rate was
attributable, in part, to a decrease in the statutory rates of certain states in
which the corporation conducts business.

CREDIT CARD SECURITIZATION

The securitization of credit card receivables changes the corporation's status
from that of a lender to that of a loan servicer. Accordingly, there is a change
in the classification in which the revenue associated with the securitization is
reported in the income statement. The corporation's revenue over the terms of a
securitization transaction may vary depending upon the credit performance of the
securitized receivables because credit losses become a component of the cash
flows arising from the securitized transaction. However, the corporation's
exposure to credit losses on the securitized receivables is contractually
limited to these cash flows.

    The following table depicts the consolidated financial statement impact as
if the securitized receivables had, in fact, been owned, as well as additional
financial information pertaining to credit card receivables.

Credit Card Securitization Summary

Year ended December 31                               Credit Card 
Dollars in millions                    Reported   Securitization        Managed
===============================================================================
Net interest income (FTE)              $  3,905         $    743       $  4,648
Provision for credit losses                 470              518            988
Noninterest income                        3,237             (225)         3,012
Noninterest expense                       4,129               --          4,129
Net income                                1,532               --          1,532
Assets-year-end                        $104,382         $  8,808       $113,190
Assets-average                           98,008            7,912        105,920
Net interest margin                        4.63%            9.39%          5.04%
------------------------------------------------------------------------------

LINES OF BUSINESS

    Fleet Financial Group is organized and managed along five lines of business:
Commercial Financial Services, Retail Banking, National Financial Services,
Fleet Investment Group, and Treasury. The financial performance of the
corporation is monitored by an internal profitability measurement system, which
provides line of business results and key performance measures. The following
table presents selected line of business results. As required by Statement of
Financial Accounting Standards No. 131, three years of business line comparative
financial statements are presented in Footnote 14.

Line of Business Earnings Summary

<TABLE>
<CAPTION>
Year ended December 31            1998     1997     1998     1997     1998      1997
Dollars in millions                Net Income       Total Revenue   Return on Equity
====================================================================================
<S>                             <C>      <C>      <C>      <C>          <C>       <C>
Commercial Financial Services   $  444   $  371   $1,732   $1,601       20%       17%
Retail Banking                     427      456    2,399    2,440       24        26
National Financial Services        242       97    1,504      811       12        11
Fleet Investment Group             238      187    1,201      981       21        28
Treasury                           127       92      240      202       42        34
All Other                           54      164       66      335      n/m       n/m
------------------------------------------------------------------------------------
Total                           $1,532   $1,367   $7,142   $6,370       18%       19%
====================================================================================
</TABLE>

During 1998, increased earnings were recorded by all business lines with the
exception of Retail Banking. Increased earnings were driven by continued core
franchise growth which was further enhanced by acquisitions. 1998 results also
reflect increased resources directed towards higher growth fee-generating
businesses such as Fleet Investment Group and National Financial Services. In
1998, resources freed up by the sale of several units in 1997 were invested into
the acquisitions of Quick & Reilly, the consumer credit card operations of
Advanta, and Columbia. As a result of the ongoing evaluation of corporate
businesses, over 30% of corporate earnings are now from higher growth fee-based
businesses (Fleet Investment Group and National Financial Services), as compared
to just over 20% in 1997.


26
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Earnings Composition by Line of Business

 [The following table was represented as a bar chart in the printed material.]

                                                 1996        1997        1998
Commercial Financial Services                      25%         27%         29%
Retail Banking                                     21%         33%         28%
National Financial Services                        11%          7%         16%
Fleet Investment Group                             14%         14%         15%
Treasury/All Other                                 29%         19%         12%

Commercial Financial Services

Year ended December 31
Dollars in millions                                       1998             1997
===============================================================================
Income Statement Data:
 Net interest income (FTE)                             $ 1,316          $ 1,212
 Noninterest income                                        416              389
 Provision                                                 207              218
 Noninterest expense                                       796              740
 Taxes/FTE adjustment                                      285              272
-------------------------------------------------------------------------------
Net income                                             $   444          $   371
-------------------------------------------------------------------------------
Balance Sheet Data:
 Average loans                                         $39,697          $34,572
 Average deposits                                       11,447           11,027
-------------------------------------------------------------------------------
Return on equity                                            20%              17%
===============================================================================

Commercial Financial Services provides a full range of credit and banking
services to corporate, middle-market, real estate, government and leasing
customers. Fleet enjoys a strong presence in the Northeast and also has several
specialty businesses of national scope which serve to diversify and complement
its client base.

      Commercial Financial Services earned $444 million in 1998, a 20% increase
from earnings of $371 million in 1997. Increased earnings resulted from strong
loan growth, up $5 billion, or 15%, over 1997, as well as increased noninterest
revenues across most Commercial Financial Services businesses. These results
also reflect investments in several business initiatives in the areas of high
yield lending, Fleet Leasing, Fleet Capital, and Corporate Finance. While loan
growth was evident in all commercial business lines, increased noninterest
revenues were driven by increased banking fees from cash management and trade
services, as well as increased corporate finance cross-selling efforts.

Retail Banking

Year ended December 31
Dollars in millions                                       1998             1997
===============================================================================
Income Statement Data:
 Net interest income (FTE)                             $ 1,779          $ 1,862
 Noninterest income                                        620              578
 Provision                                                 117              119
 Noninterest expense                                     1,493            1,482
 Taxes/FTE adjustment                                      362              383
-------------------------------------------------------------------------------
Net income                                             $   427          $   456
-------------------------------------------------------------------------------
Balance Sheet Data:
 Average loans                                         $ 9,935          $10,590
 Average deposits                                       42,614           43,434
-------------------------------------------------------------------------------
Return on equity                                            24%              26%
===============================================================================

Retail Banking includes consumer banking and Fleet's commercial small business
group. Retail Banking offers customers products and services to conveniently
access, move, and manage their money and delivers these services through its
network of nearly 1,200 branches. Fleet's business and entrepreneurial services
group provides a full range of financial services targeted at businesses with
annual sales of up to $10 million. Fleet is the leading small-business lender in
New England and ranks among the ten largest in the country.

      In 1998, Retail Banking earned $427 million, down from 1997 earnings of
$456 million. Lower earnings resulted primarily from lower net interest income
driven by lower loan and deposit volumes. Retail deposit volumes declined by
$820 million on average, as customers continued to migrate from traditional
deposit products towards investment products and mutual funds. While total
average retail deposits declined by $820 million, the runoff in lower cost
savings and NOW accounts was even greater. This decline, however, was partly
offset by an increase in money market accounts which typically carry higher
interest costs than traditional savings products. Lower net interest income was
partly offset by higher noninterest revenue driven by new product initiatives
and increased direct banking fees from ATM and debit card activity, as the
Retail Banking unit continued to invest in alternative delivery channels and
fee-based products.

      In 1998, Retail Banking continued the ongoing reconfiguration of retail
product distribution channels in a manner consistent with changing customer
preferences. During 1998, the bank sold 33 branches and consolidated 15 other
branches in various well-serviced locations. While reducing the number of
traditional branches, Fleet increased retail distribution points by adding ATMs.
The following table shows the increase in total retail distribution points.

Retail Distribution Points

 [The following table was represented as a bar chart in the printed material.]

                                  1996             1997             1998
ATMs                             2,021            2,389            2,530
Branches                         1,248            1,197            1,151
                                 -----            -----            -----
                                 3,269            3,586            3,681


                                                                              27
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

National Financial Services

Year ended December 31
Dollars in millions                                       1998             1997
===============================================================================
Income Statement Data:
 Net interest income (FTE)                              $  489           $  289
 Noninterest income                                      1,015              522
 Provision                                                 297              203
 Noninterest expense                                       810              452
 Taxes/FTE adjustment                                      155               59
-------------------------------------------------------------------------------
Net income                                              $  242           $   97
-------------------------------------------------------------------------------
Balance Sheet Data:
 Average loans                                          $4,634           $3,007
 Average deposits                                        2,645            1,899
-------------------------------------------------------------------------------
Return on equity                                            12%              11%
===============================================================================

National Financial Services includes mortgage banking, credit cards, venture
capital and student loan processing (AFSA). Fleet's mortgage banking business
originates, sells and services first and second-mortgage products spanning all
customer segments. Fleet Mortgage Group originated approximately $36 billion of
loans in 1998. This business services a mortgage portfolio of $119 billion and
1.4 million loans. In 1998, Fleet purchased three credit card portfolios. These
acquisitions rank Fleet as the eighth largest issuer of credit cards. Fleet
Private Equity provides management teams with the private equity capital
necessary to acquire, recapitalize or grow private and public companies. Student
loan processing, through the AFSA subsidiary, services 6.5 million accounts
nationwide and is the largest student loan servicer in the nation with $48.7
billion of student loans serviced.

      National Financial Services earnings increased by $145 million compared to
1997, due primarily to the acquisition of the Advanta consumer credit card
business.

      The following table presents the comparative net income for each of the
units which comprise National Financial Services.

National Financial Services
Net Income by Line of Business

Year ended December 31
Dollars in millions                                        1998            1997
===============================================================================
Credit cards                                               $ 91            $ (5)
Venture capital                                              84              33
Mortgage banking                                             43              49
Student loan processing                                      24              20
-------------------------------------------------------------------------------
Net income                                                 $242            $ 97
===============================================================================

In 1998, mortgage banking recorded a $75 million MSR impairment charge, partly
offset by related gains on the sale of servicing rights. Excluding these items,
mortgage banking earnings were $73 million, representing a 49% increase over
1997. This results from increased loan production volumes as refinancing
activity was strong in a low mortgage-rate environment. National Financial
Services also had increased earnings from AFSA student loan processing,
resulting from increases in student loan account volumes, while venture capital
net income increased by $51 million. Venture capital earnings are affected by
the condition of equity markets and the general state of the economy.
Accordingly, earnings for this unit can vary significantly from
period-to-period. During 1998, National Financial Services had a return on
equity of 12% which reflected the impact of the goodwill recorded in connection
with the purchase of Advanta's credit card operation, as well as the impact of
the impairment charge in the mortgage banking business.

Fleet Investment Group

Year ended December 31
Dollars in millions                                       1998             1997
===============================================================================
Income Statement Data:
 Net interest income (FTE)                             $   185          $   170
 Noninterest income                                      1,016              811
 Provision                                                   5                5
 Noninterest expense                                       789              651
 Taxes/FTE adjustment                                      169              138
-------------------------------------------------------------------------------
Net income                                             $   238          $   187
-------------------------------------------------------------------------------
Assets under management                                $84,127          $76,654
-------------------------------------------------------------------------------
Return on equity                                            21%              28%
===============================================================================

Fleet Investment Group is comprised of several businesses, all targeting
customers' growing need for investment products and services. These businesses
include Quick & Reilly which offers brokerage, market-making, and securities
clearing services, the private clients group which offers specialized asset
management, estate settlement and deposit and credit products to high-net-worth
customers, Columbia which sells proprietary mutual funds and manages personal
and institutional business lines in the Pacific Northwest, retail investments
which markets Galaxy (Fleet's proprietary mutual fund family) and third party
mutual fund and annuity products, and several other businesses which offer
retirement plan services, large institutional asset management and
not-for-profit investment services. 

      Combined, these units of Fleet Investment Group earned $238 million in
1998, an increase of $51 million compared to 1997. Revenue increased by $220
million, or 22%, driven by strong growth in assets under management, as well as
increased brokerage and market-making revenues. Increased investment management
revenue was the result of related growth in assets under management and
increased sales of mutual funds and annuity products, as well as the acquisition
of Columbia. Assets under management grew to over $84 billion in 1998. 

Assets Under Management 
(Dollars in billions)

 [The following table was represented as a bar chart in the printed material.]

                           1994      $39
                           1995      $45
                           1996      $48
                           1997      $77
                           1998      $84


28
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Revenue growth was also the result of increased brokerage and market-making
revenues which increased by $64 million, or 16%, compared to 1997. Lower return
on equity in 1998 reflected the impact of the premium paid in connection with
the acquisition of Columbia.

Treasury

Year ended December 31
Dollars in millions                                        1998            1997
===============================================================================
Income Statement Data:
 Net interest income (FTE)                               $  118          $  115
 Noninterest income                                         122              87
 Provision                                                   14              15
 Noninterest expense                                         64              64
 Taxes/FTE adjustment                                        35              31
-------------------------------------------------------------------------------
Net income                                               $  127          $   92
-------------------------------------------------------------------------------
Balance Sheet Data:
 Average securities                                      $9,349          $7,696
 Average residential mortgages                            7,519           6,608
-------------------------------------------------------------------------------
Return on equity                                             42%             34%
===============================================================================

Treasury is responsible for managing the corporation's securities and 
residential mortgage portfolios, trading operations, asset-liability 
management function and wholesale funding needs. The Treasury unit earned 
$127 million in 1998, an increase of $35 million from 1997. Excluding 
securities gains in both periods, earnings increased by $25 million, or 35%. 
Increased earnings were driven by increased sales of foreign exchange and 
interest-rate protection products. Increased sales of these items were the 
result of strong cross-selling efforts and referrals, primarily from the 
Commercial Financial Services unit. Increased earnings were also influenced 
by increased residential and investment portfolios.

All Other

All Other includes the parent company and certain transactions not allocable to
any specific business unit. In addition, the impact of methodology allocations
such as provision for credit losses, credit reserve, and equity are reported in
this unit. Similarly, for comparative purposes, certain businesses sold in 1997
have also been moved into this unit. Earnings in this unit can fluctuate with
changes affecting consolidated provision for credit losses, merger and
restructuring-related charges, gains and other actions not driven by specific
business units.

      All Other earned $54 million in 1998 compared to $164 million in 1997. The
decline in earnings was due primarily to revenues and associated expenses in
1997 from business units Fleet exited in 1997, and higher merger charges taken
in 1998. Lower earnings also resulted from higher consolidated provision for
credit losses in 1998.

BALANCE SHEET ANALYSIS

Total assets increased $13.3 billion to $104.4 billion as of December 31, 1998,
as a result of strong loan growth, an increase in mortgages held for resale and
the acquisition of three credit card portfolios during the year. 

      Fleet's investment securities portfolio plays a significant role in the
management of the corporation's balance sheet as the liquid nature of the
securities portfolio enhances the efficiency of the balance sheet. The amortized
cost of securities available for sale increased $1.6 billion to $9.5 billion at
December 31, 1998 compared to $8.0 billion at December 31, 1997. The valuation
reserve for securities available for sale increased $53 million to an unrealized
gain position of $211 million at December 31, 1998, due to changes in the
interest-rate environment. 

Securities

<TABLE>
<CAPTION>
                                                     1998                      1997                     1996
December 31                               Amortized       Market    Amortized       Market   Amortized        Market
Dollars in millions                            Cost        Value         Cost        Value        Cost         Value
====================================================================================================================
<S>                                       <C>            <C>        <C>            <C>        <C>            <C>    
Securities available for sale:
 U.S. Treasury and government agencies      $   434      $   437      $ 1,126      $ 1,134      $ 1,077      $ 1,083
 Mortgage-backed securities                   7,784        7,982        6,177        6,298        5,987        6,006
 Other debt securities                          792          802          186          189           --           --
--------------------------------------------------------------------------------------------------------------------
  Total debt securities                       9,010        9,221        7,489        7,621        7,064        7,089
--------------------------------------------------------------------------------------------------------------------
   Marketable equity securities                 292          292          256          282          229          255
   Other securities                             211          211          210          210          159          159
--------------------------------------------------------------------------------------------------------------------
     Total securities available for sale      9,513        9,724        7,955        8,113        7,452        7,503
--------------------------------------------------------------------------------------------------------------------
     Total securities held to maturity        1,068        1,073        1,249        1,254        1,177        1,172
--------------------------------------------------------------------------------------------------------------------
Total securities                            $10,581      $10,797      $ 9,204      $ 9,367      $ 8,629      $ 8,675
====================================================================================================================
</TABLE>

Loans

The loan portfolio inherently includes credit risk. Fleet attempts to control
such risk through review processes that include analysis of credit applications,
portfolio diversification and ongoing examinations of outstandings and
delinquencies. Fleet strives to identify potential classified assets as early as
possible, to take charge-offs promptly based on realistic assessments of
probable losses and to maintain adequate reserves for credit losses. The
corporation's portfolio is well-diversified by borrower, industry and product,
thereby reducing risk.


                                                                              29
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Loans

December 31
Dollars in millions                                        1998             1997
================================================================================
Commercial and industrial                               $37,167          $32,000
Lease financing                                           4,225            3,376
Commercial real estate                                    5,374            5,677
Consumer                                                 22,630           21,512
--------------------------------------------------------------------------------
Total loans                                             $69,396          $62,565
================================================================================

Total loans increased $6.8 billion, or 11%, over December 31, 1997. This
increase was due primarily to loan growth in the commercial and industrial and
lease financing portfolios, as well as the acquisition of the credit card
operations of Advanta and purchases of credit card receivables from Crestar
Financial and Household International, Inc., offset by a slight decline in the
commercial real estate and residential real estate portfolios.

LOANS
(Dollars in billions)

(The following table was represented as a bar chart in the printed material.)

<TABLE>
<CAPTION>

                          1994      1995      1996    1997     1998
<S>                      <C>       <C>      <C>      <C>      <C>
Commercial               $ 19.5    $ 23.1   $ 29.1   $ 32.0   $ 37.2
Consumer                   20.2      22.3     21.7     21.5     22.6
Commercial RE               5.5       5.0      6.5      5.7      5.4
Lease Financing             1.5       2.2      2.6      3.4      4.2
                         ------    ------   ------   ------   ------
                         $ 46.7    $ 52.6   $ 59.9   $ 62.6   $ 69.4
</TABLE>

Commercial and Industrial-Product Diversification

December 31
Dollars in millions                                          1998           1997
================================================================================
Banks and insurance                                       $ 5,697        $ 4,596
Real estate/construction/contractors                        3,018          2,188
Communications                                              2,604          2,568
Business services                                           2,055          1,699
Precious metals/jewelry                                     2,030          1,637
Retail                                                      2,014          1,750
Healthcare                                                  2,000          1,969
Transportation                                              1,780          1,656
Tourism and entertainment                                   1,580          1,306
Machinery and equipment                                     1,578          1,280
Computers and electronics                                   1,546          1,457
Apparel and textiles                                        1,232          1,077
Energy production and distribution                          1,072          1,018
Printing and publishing                                     1,056            839
Food distribution and production                              957            880
Forest products                                               932          1,015
Plastics, ceramics, rubber and misc. products                 920            827
Other                                                       5,096          4,238
--------------------------------------------------------------------------------
Total                                                     $37,167        $32,000
================================================================================

C&I borrowers consist primarily of middle-market and corporate customers and are
well-diversified as to industry and companies within each industry. Although the
corporation is engaged in business nationwide, the lending done by the banking
subsidiaries is primarily concentrated in New England, New York and New Jersey.

      The corporation has limited international lending exposure, which is
evidenced by the fact that $485 million, or less than 1% of the outstanding
loans were in the Asia/Latin America/Emerging Markets sectors. The corporation's
international loans are trade-related with maturities generally less than 90
days. Asia had outstandings of $95 million of which $92 million was outstanding
in Korea; Latin America had outstandings of $343 million of which $161 million
and $76 million were outstanding in Brazil and Argentina, respectively; and
other emerging markets had outstandings of $47 million. The corporation had no
direct exposure to Russia and other Eastern European countries.

      Lease financing totaled $4.2 billion at December 31, 1998, compared with
$3.4 billion at December 31, 1997. This 25% increase was primarily attributable
to increased lease originations from both the direct leasing group and the newly
formed Global Lease Finance unit. The corporation provides a wide variety of
leasing products to the middle and large ticket marketplaces. The Sanwa Business
Credit acquisition closed on February 1, 1999 and added approximately $6 billion
of assets, of which approximately $4 billion are lease financings. This
acquisition significantly expands Fleet's geographic presence, existing product
line, and client base to include lease financing for manufacturers of capital
equipment and leasing programs for small businesses. As a result of this
acquisition, Fleet Capital Leasing has become the third ranked bank lessor and
one of the top ten leasing companies in the United States.

Commercial Real Estate-Product Diversification

December 31
Dollars in millions                                     1998                1997
================================================================================
Apartments                                            $1,330              $1,196
Office                                                 1,241               1,184
Retail                                                 1,211               1,365
Industrial                                               321                 366
Other                                                  1,271               1,566
--------------------------------------------------------------------------------
Total                                                 $5,374              $5,677
================================================================================

Commercial real estate (CRE) loans decreased by $303 million, or 5%, from
December 31, 1997 to December 31, 1998, as the corporation has strategically
sought to reduce this loan portfolio.

Consumer Loans

December 31
Dollars in millions                                      1998               1997
================================================================================
Residential real estate                               $ 9,314            $10,019
Home equity                                             4,257              4,851
Credit card                                             5,673              2,742
Student loans                                             812              1,029
Installment/other                                       2,574              2,871
--------------------------------------------------------------------------------
Total                                                 $22,630            $21,512
================================================================================

Approximately 60% of the consumer loan portfolio at December 31, 1998
represented loans secured by residential real estate, including second
mortgages, home equity loans and lines of credit. The corporation manages the
risk associated with most types of consumer loans by utilizing uniform credit
standards when extending credit, together with systems that streamline the
process of monitoring delinquencies.


30
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

      Outstanding residential real estate loans secured by one- to four-family
residences decreased $705 million to $9.3 billion at December 31, 1998. This
decline was primarily the result of the sale of $750 million of Community
Reinvestment Act (CRA) residential mortgage loans at book value. The loans were
sold to provide balance sheet capacity for further CRA lending.

      The remainder of consumer loans increased $1.8 billion from December 
31, 1997. The increase was directly attributable to the acquisition of the 
consumer credit card operations of Advanta and purchases of credit card 
receivables from Crestar Financial and Household International, Inc., as 
credit card loans increased by $2.9 billion during the period.

NONPERFORMING ASSETS

Nonperforming Assets(a)(b)

Dollars in millions                        C&I        CRE     Consumer     Total
================================================================================
Nonperforming loans:
 Current or less than
  90 days past due                         $123       $ 26       $  2       $151
 Noncurrent                                  48         27         39        114
Other real estate
 owned (OREO)                                 2          4         11         17
--------------------------------------------------------------------------------
Total NPAs December 31, 1998               $173       $ 57       $ 52       $282
--------------------------------------------------------------------------------
Total NPAs December 31, 1997               $257       $ 83       $ 76       $416
================================================================================

(a)   Throughout this document, NPAs and related ratios do not include loans
      greater than 90 days past due and still accruing interest ($234 million
      and $202 million at December 31, 1998 and 1997, respectively). Included in
      the 90 days past due and still accruing interest were $209 million and
      $172 million of consumer loans at December 31, 1998 and 1997,
      respectively.

(b)   Nonperforming assets and related ratios at December 31, 1998 and 1997 do
      not include $46 million and $214 million, respectively, of nonperforming
      assets classified as held for sale by accelerated disposition.

Nonperforming assets (NPAs) are assets on which income recognition has either
ceased or is limited. NPAs negatively affect the corporation's earnings by
reducing interest income. In addition to NPAs, asset quality is measured by the
amount of provision, charge-offs and certain credit quality related ratios as
disclosed in the Reserve for Credit Losses Activity table.

      NPAs decreased $134 million, or 32%, over the prior year. NPAs at December
31, 1998, as a percentage of total loans and as a percentage of total assets
were .41% and .27%, respectively, compared to .66% and .46%, respectively, at
December 31, 1997. This improvement was due to declining NPAs in all portfolios.

Activity in Nonperforming Assets

Year ended December 31
Dollars in millions                                        1998            1997
===============================================================================
Balance at beginning of year                              $ 416           $ 723
Additions                                                   458             696
Reductions:
 Payments/interest applied                                 (303)           (441)
 Returned to accrual                                        (47)            (68)
 Charge-offs/write-downs                                   (166)           (174)
 Sales/other                                                (43)            (89)
-------------------------------------------------------------------------------
  Total reductions                                         (559)           (772)
-------------------------------------------------------------------------------
Subtotal                                                    315             647
-------------------------------------------------------------------------------
Assets reclassified as held for sale
 by accelerated disposition                                 (33)           (231)
-------------------------------------------------------------------------------
Balance at end of year                                    $ 282           $ 416
===============================================================================

RESERVE FOR CREDIT LOSSES

The reserve for credit losses represents the amount available for credit losses
inherent in the bank's portfolio. It reflects management's ongoing detailed
review of certain individual loans, supplemented by an analysis of the
historical net charge-off experience of the portfolio, an evaluation of
prevailing economic and business conditions, a review of industry
concentrations, including emerging market risk, and changes in the size and
characteristics of the portfolio, as well as other pertinent factors.
Assumptions utilized in the reserve calculation methodology have been relatively
consistent with actual results. Based on these analyses, and the assumptions
contained therein, the corporation believes that its year-end reserve for credit
losses is adequate.

      Loans are charged off once the probability of loss has been established,
with consideration given to factors such as the customer's financial condition,
underlying collateral and guarantees, as well as general and industry economic
conditions.

      Fleet's reserve for credit losses increased $120 million from December 31,
1997, to $1.552 billion at December 31, 1998, significantly due to reserves
acquired as part of the acquisition of the consumer credit card operations of
Advanta. The 1998 provision for credit losses was $470 million, $148 million
higher than the prior year level of $322 million. The increase in the provision
for credit losses was due primarily to a 59% increase in net charge-offs in the
credit card portfolio. The provision for credit losses is expected to increase
in 1999 due to the Sanwa and Household portfolio acquisitions. Total assets from
these acquisitions were $7.3 billion.

      During 1998, the corporation experienced significant loan growth of $6.8
billion, or 11%, while the reserve for credit losses increased 8%. As a result
of core loan growth and the acquisition of various credit card portfolios, the
risk characteristics of the corporation's loan portfolio have been altered.
Specifically, the growth in credit card receivables of $2.9 billion required
that additional reserves be allocated to the consumer portfolio. Therefore, the
allocated reserve pertaining to the consumer portfolio has increased from 24% of
the total reserve for credit losses in 1997 to 39% in 1998. Additionally, even
though the corporation's loan portfolio increased 11%, the reserve for credit
losses, as a percent of total loans, decreased 2% as a result of the
corporation's reserve methodology assessing the impact of a strong domestic
economy combined with improvements in certain business sectors. 

      An integral component of the corporation's risk management process is to
ensure the proper allocation of the reserve for credit losses based upon an
analysis of risk characteristics, demonstrated losses, loan segmentations, and
other factors. The unallocated component of the reserve for credit losses
represents management's evaluation of the loan portfolio, including its size and
complexity, and the realization that there are estimable losses that have been
incurred within the portfolio but not yet specifically identified. At December
31, 1998, the corporation's unallocated reserve has declined 38% from 1997 as
the portfolio's risk characteristics have been altered resulting primarily from
the additional credit card receivables acquired throughout 1998.


                                                                              31
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Reserve for Credit Losses Allocation

<TABLE>
<CAPTION>
                                        1998                       1997                       1996                      1995        
===================================================================================================================================
                                         Percent of                 Percent of                 Percent of                Percent of 
December 31                            Loan Type to               Loan Type to               Loan Type to              Loan Type to 
Dollars in millions            Amount   Total Loans       Amount   Total Loans       Amount   Total Loans       Amount  Total Loans 
===================================================================================================================================
<S>                           <C>             <C>         <C>            <C>         <C>            <C>         <C>           <C>   
Commercial and industrial     $  639          53.56%      $  626         51.15%      $  668         48.63%      $  606        43.85%
Consumer                         609          19.19          345         18.37          365         22.79          209        20.54 
Commercial real estate:                                                                     
 Construction                     12           1.55           15          1.42           26          1.79           23         1.15 
 Interim/permanent                47           6.19           83          7.65          129          8.99          138         8.40 
Residential real estate           24          13.42           41         16.01           67         13.44           90        21.83 
Lease financing                   18           6.09           18          5.40           20          4.36           19         4.23 
Unallocated                      203             --          304            --          213            --          236           -- 
-----------------------------------------------------------------------------------------------------------------------------------
Total                         $1,552          100.0%      $1,432         100.0%      $1,488         100.0%      $1,321        100.0%
===================================================================================================================================

<CAPTION>
                                          1994
=====================================================
                                           Percent of    
December 31                              Loan Type to    
Dollars in millions              Amount   Total Loans
=====================================================
<S>                              <C>            <C>   
Commercial and industrial        $  620         41.80%
Consumer                            226         25.06
Commercial real estate:                  
 Construction                        17          1.43
 Interim/permanent                  190         10.26
Residential real estate              47         18.27
Lease financing                      18          3.18
Unallocated                         378            --
-----------------------------------------------------
Total                            $1,496         100.0%
=====================================================
</TABLE>

Reserve for Credit Losses Activity

<TABLE>
<CAPTION>
Year ended December 31
Dollars in millions                 1998          1997           1996          1995          1994
=================================================================================================
<S>                              <C>           <C>            <C>           <C>           <C>    
Balance at beginning
 of year                         $ 1,432       $ 1,488        $ 1,321       $ 1,496       $ 1,669
Gross charge-offs:
 Consumer                             83           118             98            84           100
 Credit card                         332           203            132            57            30
 Commercial and
  industrial                         164           132            160           109            91
 Commercial real estate               16            38             60            99            95
 Residential real estate              13            21             30            65            52
 Lease financing                       1             2              4             4             9
-------------------------------------------------------------------------------------------------
Total gross charge-offs              609           514            484           418           377
-------------------------------------------------------------------------------------------------
Recoveries:
 Consumer                             22            29             22            29            32
 Credit card                          31            14              8             5             3
 Commercial and
  industrial                          63            64             59            48            60
 Commercial real estate               19            26             17            25            27
 Residential real estate               2             3              4             4            11
 Lease financing                       2             2              4             5             5
-------------------------------------------------------------------------------------------------
Total recoveries                     139           138            114           116           138
-------------------------------------------------------------------------------------------------
Net charge-offs                      470           376            370           302           239
Provision                            470           322            213           101            65
Acquired/other                       120            (2)           324            26             1
-------------------------------------------------------------------------------------------------
Balance at end of year           $ 1,552       $ 1,432        $ 1,488       $ 1,321       $ 1,496
-------------------------------------------------------------------------------------------------
Ratio of net charge-offs
 to average loans                    .71%          .63%           .65%          .58%          .53%
Ratio of reserve for credit
 losses to year-end loans           2.24%         2.29%          2.49%         2.51%         3.20%
Ratio of reserve for credit
 losses to year-end
 nonperforming loans                 586%          365%           214%          301%          224%
=================================================================================================
</TABLE>

Net charge-offs increased $94 million to $470 million in 1998. Net charge-offs
from the credit card portfolio increased $112 million to $301 million, due to a
$1.7 billion increase in average credit card loans, year-to-year, from the
acquisition of Advanta's consumer credit card portfolio. The ratio of net
charge-offs to average loans increased to .71% as compared to .63% at December
31, 1997. Net charge-offs are expected to increase in 1999 due to the
acquisition of Sanwa.

FUNDING SOURCES

Components of Funding Sources

December 31
Dollars in millions                                        1998             1997
================================================================================
Deposits:
 Demand                                                 $13,400          $13,148
 Regular savings and NOW                                  5,399            5,981
 Money market                                            29,297           24,504
 Time:
  Domestic                                               17,764           16,258
  Foreign                                                 3,818            3,844
--------------------------------------------------------------------------------
Total deposits                                           69,678           63,735
--------------------------------------------------------------------------------
Short-term borrowed funds:
 Federal funds purchased                                  1,857            1,005
 Securities sold under agreements
  to repurchase                                           2,599            2,630
 Commercial paper                                           943              811
 Other                                                    3,913            3,059
--------------------------------------------------------------------------------
Total short-term borrowed funds                           9,312            7,505
--------------------------------------------------------------------------------
Due to brokers/dealers                                    3,975            4,316
Long-term debt                                            8,820            4,500
--------------------------------------------------------------------------------
Total                                                   $91,785          $80,056
================================================================================

Total deposits increased $5.9 billion to $69.7 billion at December 31, 1998. The
increase was due primarily to a $4.8 billion increase in money market deposits
as a result of rates aimed at attracting new sources of funds. Time deposits
increased $1.5 billion due to the corporation issuing jumbo time deposits to
fund earning asset growth during 1998.

    Certificates of deposit and other time deposits issued by domestic offices
in amounts of $100,000 or more as of December 31, 1998 will mature as follows:

Maturity of Time Deposits

December 31, 1998                                                        Foreign
Dollars in millions,                            Certificates                Time
Remaining maturity                                of Deposit            Deposits
================================================================================
3 months or less                                      $3,718              $3,810
3 to 6 months                                            799                   6
6 to 12 months                                         1,531                   2
Over 12 months                                           715                  --
--------------------------------------------------------------------------------
Total                                                 $6,763              $3,818
================================================================================


32
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Total short-term borrowed funds increased $1.8 billion from December 31, 1997,
due primarily to increasing levels of federal funds purchased as a result of
needs to fund asset growth.

      Long-term debt increased by $4.3 billion due to the issuance of $4.6
billion of new debt and $520 million of capital securities to fund acquisitions
and balance sheet growth, partially offset by almost $900 million of maturities.

      Management believes Fleet has sufficient liquidity to meet its liabilities
of customer deposits and debt holders. The effect of maturing liabilities is
discussed in the Asset-Liability Management section that follows.

ASSET-LIABILITY MANAGEMENT

The goal of asset-liability management is the prudent control of market risk,
liquidity, and capital. Asset-liability management is governed by policies
reviewed and approved annually by the corporation's Board of Directors (the
Board). The Board delegates responsibility for asset-liability management to the
corporate Asset-Liability Management Committee (ALCO). ALCO sets strategic
directives that guide the day-to-day asset-liability management activities of
the corporation. ALCO also reviews and approves all major market risk,
liquidity, and capital management programs.

Market Risk

Market risk is the sensitivity of income to variations in interest rates,
foreign exchange rates, equity prices, commodity prices, and other market-driven
rates or prices. As discussed below, the corporation is exposed to market risk
in both its non-trading and trading operations.

Non-trading Market Risk

Interest-rate risk, including mortgage prepayment risk, is by far the most 
significant non-trading market risk to which the corporation is exposed. 
Interest-rate risk is the sensitivity of income to variations in interest 
rates. This risk arises directly from the corporation's core banking 
activities - lending, deposit gathering, and loan servicing.

      The primary goal of interest-rate risk-management is to control the
corporation's exposure to interest-rate risk both within limits approved by the
Board and within narrower guidelines approved by ALCO. These limits and
guidelines reflect the corporation's tolerance for interest-rate risk over both
short-term and long-term time horizons.

      The corporation controls interest-rate risk by identifying, quantifying,
and hedging its exposures. The corporation identifies and quantifies its
interest-rate exposures using sophisticated simulation and valuation models, as
well as simpler gap analyses, reflecting the known or assumed maturity,
repricing, and other cash flow characteristics of the corporation's assets and
liabilities. 

      The corporation manages the interest-rate risk inherent in its core
banking operations using both on-balance sheet instruments, mainly fixed-rate
portfolio securities, and a variety of off-balance sheet instruments. The most
frequently used off-balance sheet instruments are interest-rate swaps and
options (e.g., interest-rate caps and floors). When appropriate, forward-rate
agreements, options on swaps, and exchange-traded futures and options are also
used.

      The major source of the corporation's non-trading interest-rate risk is
the difference in the repricing characteristics of the corporation's core
banking assets and liabilities - loans and deposits. This difference or mismatch
is a risk to net interest income.

      Most significantly, the corporation's core banking assets and liabilities
are mismatched with respect to repricing frequency, maturity and/or index. Most
of the corporation's commercial loans, for example, reprice rapidly in response
to changes in short-term interest rates (e.g., London Interbank Offered Rate
(LIBOR) and prime rate). In contrast, many of its consumer deposits reprice
slowly, if at all, in response to changes in market interest rates. As a result,
the core bank is asset-sensitive.

      In managing net interest income, the corporation uses fixed-rate portfolio
securities and interest-rate swaps to offset the general asset-sensitivity of
the core bank. Additionally, the corporation uses interest-rate swaps to offset
basis risk, including the specific exposure to changes in the prime rate. At
December 31, 1998 and 1997, interest-rate swaps totaling $14.8 billion and $12.2
billion (notional amount), respectively, were being used to manage risk to net
interest income.

      A second major source of the corporation's non-trading interest-rate risk
is the sensitivity of its mortgage servicing rights (MSRs) to prepayments. The
mortgage borrower has the option to prepay the mortgage loan at any time. When
mortgage interest rates decline, borrowers have a greater incentive to prepay
mortgage loans through a refinancing; when mortgage interest rates rise, this
incentive is reduced or eliminated. Since MSRs represent the right to service
mortgage loans, a decline in interest rates and an actual, or probable, increase
in mortgage prepayments shorten the expected life of the MSR asset and reduce
its economic value. Correspondingly, an increase in interest rates and an
actual, or probable, decline in mortgage prepayments lengthen the expected life
of the MSR asset and enhance its economic value. The expected income from and,
therefore, economic value of MSRs is sensitive to movements in interest rates
due to this sensitivity to mortgage prepayments.

      To mitigate the risk of declining long-term interest rates, increased
mortgage prepayments, and the potential impairment of the MSRs, the corporation
uses a variety of risk-management instruments, including interest-rate swaps,
caps and floors tied to "constant maturity" yields on long-term (e.g., 10-year)
Treasury notes and swaps, options on swaps, and exchange-traded options on
Treasury bond and note futures contracts. These instruments gain value as
interest rates decline, mitigating the impairment of MSRs. At December 31, 1998
and 1997, the corporation had approximately $65.2 billion and $30.7 billion
(notional amount), respectively, of outstanding derivatives being used to manage
risk to the MSRs' valuation.


                                                                              33
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

      Complicating management's efforts to control non-trading exposure to
interest-rate risk is the fundamental uncertainty of the maturity, repricing,
and/or runoff characteristics of some of the corporation's core banking assets
and liabilities. This uncertainty often reflects optional features contained in
these financial instruments. The most important optional features are contained
in consumer deposits and loans.

      For example, many of the corporation's interest-bearing retail deposit
products (e.g., interest checking, savings and money market deposits) have no
contractual maturity. Customers have the right to withdraw funds from these
deposit accounts freely. Deposit balances may therefore run off unexpectedly due
to changes in competitive or market conditions. To forestall such runoff, rates
on interest-bearing deposits may have to be increased more (or reduced less)
than expected. Such repricing may not be highly correlated with the repricing of
prime-based or LIBOR-based loans. Finally, balances that leave the banking
franchise may have to be replaced with other more expensive retail or wholesale
deposits. Given the uncertainties surrounding deposit runoff and repricing, the
interest-rate sensitivity of core bank liabilities cannot be determined
precisely.

      Similarly, customers have the right to prepay loans, particularly
residential mortgage loans, without penalty. As a result, the corporation's
mortgage-based assets (including mortgage loans and securities as well as
mortgage servicing rights) are subject to prepayment risk. This risk tends to
increase when interest rates fall due to the benefits of refinancing. Since the
future prepayment behavior of the bank's customers is uncertain, the
interest-rate sensitivity of mortgage assets cannot be determined exactly.

      To cope with such uncertainties, management gives careful attention to its
assumptions. Depending on the product or behavior in question, each assumption
will reflect some combination of market data, research analysis, and business
judgment. For example, assumptions for mortgage prepayments are derived from
published dealer median prepayment estimates for comparable mortgage loans.
Assumptions for noncontractual deposits are based on a historical analysis of
repricing and runoff trends, heavily weighted to the recent past, modified by
business judgment concerning prospective competitive market influences.

      To measure the sensitivity of its income to changes in interest rates, the
corporation uses a variety of methods, including simulation, gap, and valuation
analyses.

      Simulation analysis involves dynamically modeling interest income and
expense from the corporation's balance sheet and off-balance sheet positions
over a specified time period under various interest-rate scenarios and balance
sheet structures. The corporation uses simulation analysis to measure the
sensitivity of net interest income over relatively short (e.g., 1-2 year) time
horizons. 

      Key assumptions in these simulation analyses (and in the gap and valuation
analyses discussed below) relate to the behavior of interest rates and spreads,
the growth or shrinkage of product balances and the behavior of the bank's
deposit and loan customers. As indicated above, the most material assumptions
relate to the prepayment of mortgage assets, as well as the repricing and/or
runoff of noncontractual deposits.

      As the future path of interest rates cannot be known in advance,
management uses simulation analysis to project earnings under various
interest-rate scenarios. Some scenarios reflect reasonable or "most likely"
economic forecasts. Other scenarios are deliberately extreme, including
immediate interest-rate "shocks," gradual interest-rate "ramps," spread
widenings, and yield curve "twists."

      Usually, each analysis incorporates what management believes to be the
most appropriate assumptions about customer and competitor behavior in the
specified interest-rate scenario. But in some analyses, assumptions are
deliberately manipulated to test the corporation's exposure to "assumption
risk."

      The corporation's Board limits on interest-rate risk specify that if
interest rates were to shift immediately up or down 200 basis points, estimated
net interest income for the subsequent 12 months should decline by less than
7.5%. The corporation was in compliance with this limit at December 31, 1998 and
1997. The following table reflects the estimated exposure of the corporation's
net interest income for the next 12 months, assuming an immediate shift in
interest rates.

                                                      Estimated Exposure to 
      Rate Change                                      Net Interest Income  
    (Basis Points)                                    (Dollars in millions) 
================================================================================
                                                       1998        1997
--------------------------------------------------------------------------------
        +200                                           $44          $72
        -200                                          (142)        (127)
--------------------------------------------------------------------------------

Management believes that these estimates reflect a complete and accurate
representation of the corporate balance sheet. It should be emphasized, however,
that the results are dependent on material assumptions such as those previously
discussed.

      Management believes that the exposure of the corporation's net interest
income to gradual and/or modest changes in interest rates is relatively small.
As indicated by the results of the simulation analyses, however, a sharp decline
in interest rates will tend to reduce net interest income, but by amounts that
are within corporate limits. This exposure is primarily related to two major
risk factors discussed earlier - the anticipated slow repricing of
noncontractual deposits and the assumed rapid prepayment of mortgage loans and
securities.

      Gap analysis provides a static view of the maturity and repricing
characteristics of the on- and off-balance sheet positions. The interest-rate
gap is prepared by scheduling all assets, liabilities and off-balance sheet
positions according to scheduled or anticipated repricing or maturity.
Interest-rate gap analysis can be viewed as a complement to simulation analysis.

      The corporation's Board limits on interest-rate risk specify that the
cumulative one-year gap should be less than 10% of total assets. As of December
31, 1998, the estimated exposure was 5.4% asset-sensitive (see the following
table).


34
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

Interest-Rate Gap Analysis

<TABLE>
<CAPTION>
                                                                       Cumulatively Repriced Within
December 31, 1998                                    3 months      4 to 12       12 to 24       2 to 5        After 5
Dollars in millions, by repricing date                or less       months         months        years           years       Total
===================================================================================================================================
<S>                                                 <C>          <C>            <C>          <C>             <C>           <C>     
Total assets                                        $  62,763    $   9,814      $   5,006    $  10,024       $  16,775     $104,382
Total liabilities and stockholders' equity            (51,358)      (7,616)        (5,254)      (3,180)        (36,974)    (104,382)
Net off-balance sheet                                 (10,276)       2,307          4,065        2,488           1,416
-----------------------------------------------------------------------------------------------------------------------------------
Periodic gap                                            1,129        4,505          3,817        9,332         (18,783)          --
Cumulative gap                                          1,129        5,634          9,451       18,783              --           --
-----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total assets-1998          1.1%         5.4%           9.1%        18.0% 
-----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total assets-1997          4.7          3.6            2.3          8.9  
===================================================================================================================================
</TABLE>

Valuation analysis involves projecting future cash flows from the corporation's
assets, liabilities, and off-balance sheet positions over a very long-term
horizon, discounting those cash flows at appropriate interest rates, and then
aggregating the discounted cash flows. The corporation's "economic value of
equity" (EVE) is the estimated net present value of the discounted cash flows.
The interest-rate sensitivity of EVE is a measure of the sensitivity of
long-term earnings to changes in interest rates. The corporation uses valuation
analysis (specifically, the sensitivity of EVE) to measure the exposure of
earnings and equity to changes in interest rates over a relatively long (e.g.,
greater than 2-year) time horizon. Valuation analysis provides a more
comprehensive measure of the corporation's exposure to interest-rate risk than
simulation analysis. Valuation analysis incorporates a longer time horizon, and
also includes certain interest-rate-sensitive components of noninterest income
and expense, specifically fee income and amortization from mortgage servicing
rights.

      The corporation's Board limits on interest-rate risk specify that if
interest rates were to shift immediately up or down 200 basis points, the
estimated economic value of equity should decline by less than 10%. The
corporation was in compliance with this limit at December 31, 1998 and 1997. The
following table reflects the corporation's estimated exposure to economic value
assuming an immediate shift in interest rates. Exposures are reported for shifts
of +/- 100 basis points, as well as +/- 200 basis points because the sensitivity
of EVE, in particular, the sensitivity of the hedged MSRs, to changes in
interest rates can be nonlinear.

                                                        Estimated Exposure to  
            Rate Change                                    Economic Value      
          (Basis Points)                                (Dollars in millions)  
================================================================================
                                                        1998          1997     
--------------------------------------------------------------------------------
            +200                                       $  69         $(158)
            +100                                         152             9   
            -100                                        (498)         (381)  
            -200                                        (713)         (798)  
================================================================================

During 1998, management continued to add fixed-rate portfolio securities and
interest-rate swaps to control the asset-sensitivity inherent in the maturity
and repricing mismatch of core bank assets and liabilities. The impact of these
programs was partly offset by a reduction in the assumed repricing sensitivity
of interest-bearing retail deposits. These assumptions, which are subject to
frequent and careful management review, are revised as necessary to reflect
current market conditions, business trends and product manager expectations.

      In the fourth quarter of 1998, the corporation entered into a definitive
agreement to acquire Sanwa Business Credit. This transaction, which closed on
February 1, 1999, will reduce the corporation's estimated exposure to falling
interest rates. The year-end balance sheet position reflects management's
anticipation of this impact.

      It should be emphasized that valuation analysis focuses on the long-term
economic value of the corporation's future cash flows. For some financial
instruments, the adverse impact of current movements in interest rates on
expected future cash flows must be recognized immediately. For example, if
interest rates decline and the hedge is not effective, thereby reducing
estimated future fee income from MSRs such that the estimated economic value of
the MSRs falls below book value, an immediate impairment charge is required. In
contrast, for other financial instruments, such as fixed-rate investment
securities, the beneficial impact of a decline in interest rates on future
income is unrecognized unless the instruments are sold.

      As a result of such accounting requirements, a portion of the EVE exposure
attributable to mortgage servicing rights could materially impact earnings
within the next 12 months under certain extreme scenarios involving a tightening
of mortgage-treasury spreads, a decline in implied options volatilities, and/or
a greater than anticipated increase in prepayments.

      Off-balance sheet interest-rate instruments used to manage net interest
income are designated as hedges of specific assets and liabilities. Accrual
accounting is applied to these hedges, and the income or expense is recorded in
the same category as that of the related balance sheet item. The periodic net
settlement of the interest-rate risk-management instruments is recorded as an
adjustment to net interest income. The interest-rate risk-management instruments
generated $45 million, $52 million, and $12 million of net interest income
during 1998, 1997, and 1996, respectively. As of December 31, 1998, the
corporation had net deferred income of $11.5 million relating to terminated
interest-rate swap contracts, which will be amortized over the remaining life of
the underlying terminated interest-rate contracts of approximately 8 years.


                                                                              35
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

      During 1998, the corporation altered its interest-rate risk-management
portfolio to limit an increase in asset-sensitivity resulting from balance sheet
changes and swap runoff. In particular, $5.4 billion of receive-fixed swaps were
added through new transactions, partially offsetting maturities of $2.9 billion.

      The interest-rate instruments used to manage potential impairment of MSRs
are designated as hedges of the MSRs. Changes in fair value of the hedges are
recorded as adjustments to the carrying value of the MSRs and related hedges.
During 1998, net hedge gains of $667 million were deferred and recorded as
adjustments to the carrying value of the MSRs and related hedges. At December
31, 1998, the carrying value and fair value of the corporation's MSRs were $1.4
billion and $1.8 billion, respectively.

      In connection with the corporation's management of its MSR hedge program,
the corporation terminated (in notional amounts) $28 billion of interest-rate
floor agreements and $12 billion of call options and added $44 billion and $16
billion of interest-rate floor agreements and call options, respectively, during
1998. Additionally, the corporation added $10 billion of interest-rate cap
corridors and $6 billion of interest-rate swap contracts in its management of
the MSR hedge program.

      These risk-management activities do not completely eliminate interest-rate
risk in the MSRs. The MSR hedges utilized were indexed to Treasury rates, swap
rates, and mortgage rates. At December 31, 1998, approximately 30%, 54%, and
16%, were indexed to Treasury, swap, and mortgage related rates, respectively.
Treasury rates and swap rates may not move in tandem with mortgage interest
rates. In addition, as mortgage interest rates change, actual prepayments may
not respond exactly as anticipated. Other pricing factors, such as the implied
volatility of market yields, may affect the value of the option hedges without
similarly impacting the MSRs. Therefore, the corporation's hedging activity may
not be sufficient to eliminate prepayment and other market risk completely in
all interest-rate scenarios.

Risk-Management Instrument Analysis

<TABLE>
<CAPTION>
                                                                                       Weighted               Weighted Average
                                                            Assets-                     Average                      Rate
December 31, 1998                                 Notional  Liabilities                Maturity     Fair    --------------------
Dollars in millions                                  Value  Hedged                      (Years)    Value    Receive          Pay
================================================================================================================================
<S>                                              <C>                                      <C>       <C>      <C>          <C> 
Interest-rate risk-management instruments
Interest-rate swaps:
  Receive-fixed/pay-variable                     $   9,825  Variable-rate loans
                                                       356  Fixed-rate deposits
                                                     1,867  Long-term debt
                                                 ---------
                                                    12,048                                  1.9    $ 165       6.74%        6.05%
--------------------------------------------------------------------------------------------------------------------------------
  Basis swaps                                        2,779  Deposits                         .3       --       5.26         5.61
--------------------------------------------------------------------------------------------------------------------------------
Total hedges of net interest income                 14,827                                  1.6      165       6.46         5.97
--------------------------------------------------------------------------------------------------------------------------------
Mortgage banking risk-management instruments
Interest rate swaps:
  Receive-fixed/pay-variable, PO swaps               7,011  Mortgage servicing rights       3.0       83       5.88         5.59
Options:
  Interest-rate floors and options on swaps         39,560  Mortgage servicing rights       4.3      517         --(a)        --(a)
  Interest-rate caps and cap corridors              14,759  Mortgage servicing rights       3.8       68         --(a)        --(a)
  Call options purchased                             3,150  Mortgage servicing rights        .1       27         --           --
  Call options sold                                    730  Mortgage servicing rights        .1       (5)        --           --
--------------------------------------------------------------------------------------------------------------------------------
  Total options                                     58,199                                  3.9      607         --           --
--------------------------------------------------------------------------------------------------------------------------------
Total hedges of mortgage servicing rights           65,210                                  3.8      690       5.88         5.59
--------------------------------------------------------------------------------------------------------------------------------
Total risk-management instruments                $  80,037                                  3.4    $ 855       6.27%        5.85%
================================================================================================================================
</TABLE>

(a)   The mortgage-banking risk-management interest-rate floors and options on
      swaps, and interest-rate caps and cap corridors have weighted average
      strike rates of 5.28% and 6.50%, respectively.

Trading Market Risk

The corporation's trading portfolios are exposed to market risk due to
variations in interest rates, currency exchange rates, equity prices, precious
metals prices, and related market volatilities. This exposure arises in the
normal course of the corporation's business as a financial intermediary.
Interest-rate, foreign exchange, and precious metals contracts are primarily
entered into to satisfy the investment and risk-management needs of our
customers. The corporation generally enters into offsetting interest-rate,
foreign exchange, and precious metals contracts to mitigate the risk to
earnings. Equity positions result mainly from the corporation's market-making
activity. The corporation also enters into some proprietary on-balance sheet
trading positions, which principally include U.S. federal and state government
and agency securities.

      The corporation uses an "earnings at risk" (EAR) system, based on an
industry-standard risk measurement methodology, to measure the overall market
risk inherent in its trading activities. The system, using historical data to
estimate market volatility, measures the risk to earnings at a 99% confidence
level based on an assumed ten-day holding period. For instance, the
corporation's EAR measure 


36
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

estimates the loss that would be suffered if its trading positions were held for
a full ten days during an adverse market move.

      Management recognizes that this methodology, while standard, can
underestimate risk. The actual probability of an extreme market move is
generally greater than the statistics suggest because returns on financial
instruments are not normally distributed. Nevertheless, as applied to the
corporation's trading positions, the method appears to be a conservative measure
of risk because in any sustained adverse market move, it is unlikely that
trading positions would be held for a full ten days.

      Measured market risk is controlled by earnings at risk limits, which are
reviewed and approved annually by the Board. Additionally, more restrictive
guidelines may be established by ALCO. During 1998, the Board limit was $46
million. The average daily exposure to this market risk was $11.2 million, and
the maximum daily exposure was $39.6 million.

Liquidity Risk

Liquidity risk-management's objective is to assure the ability of the
corporation and its subsidiaries to meet their financial obligations. These
obligations are the withdrawal of deposits on demand or at their contractual
maturity, the repayment of borrowings as they mature, the ability to fund new
and existing loan commitments and the ability to take advantage of new business
opportunities. Liquidity is achieved by the maintenance of a strong base of core
customer funds, maturing short-term assets, the ability to sell marketable
securities, committed lines of credit and access to capital markets. Liquidity
may also be enhanced through the securitization of consumer asset receivables.
Liquidity at Fleet is measured and monitored daily, allowing management to
better understand and react to balance sheet trends. ALCO is responsible for
implementing the Board's policies and guidelines governing liquidity.

      Liquidity at the bank level is managed through the monitoring of
anticipated changes in loans, core deposits, and wholesale funds.
Diversification of liquidity sources by maturity, market, product and
counterparty are mandated through ALCO guidelines. The corporation's banking
subsidiaries routinely model liquidity under three economic scenarios, two of
which involve increasing levels of economic difficulty and financial market
strain. Management also maintains a detailed contingency liquidity plan designed
to respond either to an overall decline in the condition of the banking industry
or a problem specific to Fleet. The strength of Fleet's liquidity position is a
result of its base of core customer deposits. These core deposits are
supplemented by wholesale funding sources in the capital markets, as well as
from direct customer contacts. Wholesale funding sources include large
certificates of deposit, foreign branch deposits, federal funds, collateralized
borrowings, and a $10 billion bank-note program. During 1998, Fleet National
Bank enhanced its liquidity by lengthening the term of its wholesale funding
sources through the issuance of $4 billion of funds with maturities up to three
years.

      The primary sources of liquidity for the parent company are interest and
dividends from subsidiaries, committed lines of credit and access to the money
and capital markets. Dividends from banking subsidiaries are limited by various
regulatory requirements related to capital adequacy and earning trends. The
corporation's subsidiaries rely on cash flows from operations, core deposits,
borrowings, short-term high-quality liquid assets, and, in the case of
nonbanking subsidiaries, funds from the parent company.

      At December 31, 1998, the corporation had commercial paper outstanding of
$943 million, all of which was placed directly by Fleet in its local markets,
compared with $811 million at December 31, 1997. The corporation has a backup
line of credit totaling $1 billion to ensure that funding is not interrupted if
commercial paper is not available. At December 31, 1998 and 1997, Fleet had no
outstanding balance under the line of credit.

      The parent company had $2.1 billion available for the issuance of common,
preferred stock or preferred securities, and senior or subordinated securities
at December 31, 1998 under the existing shelf registration filed with the
Securities and Exchange Commission (SEC). The parent company's ability to access
the capital markets was demonstrated in 1998 through the issuance of $1.3
billion in subordinated debt and the issuance of $520 million of capital
securities. The parent company also repaid $550 million of debt during 1998.

      As shown in the consolidated statements of cash flows, cash and cash
equivalents increased by $164 million during 1998. The increase was due to cash
provided by financing activities of $8.3 billion, offset in part by cash used in
operating activities of $1.6 billion and cash used in investing activities of
$6.6 billion. Net cash provided by financing activities was the result of net
increases in deposits, short-term borrowings and long-term debt, offset in part
by cash dividends paid. Net cash used in operating activities was due to a net
increase in mortgages held for resale. Net cash used in investing activities was
attributable to a net increase in loans, resulting primarily from loan growth in
the commercial and industrial and lease financing portfolios and purchases of
credit card loan portfolios, as well as a net increase in securities.

CAPITAL

A financial institution's capital serves to support asset growth and provide
protection against loss to depositors and creditors. Common equity represents
the stockholders' investment in the corporation. In addition to common equity,
regulatory capital includes, within certain limits, preferred stock,
subordinated debt and loss reserves.

      The corporation strives to maintain an optimal level of capital,
commensurate with its risk profile, on which an attractive return to
stockholders will be realized over both the short and long term, while serving
depositors', creditors' and regulatory needs. In determining optimal capital
levels, the corporation also considers the capital levels of its peers and the
evaluations of the major rating agencies that assign ratings to the
corporation's public debt.


                                                                              37
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

      In blending the requirements of each of these constituencies, the
corporation has established target capital ranges that it believes will provide
for management flexibility and the deployment of capital in an optimally
efficient and profitable manner. These targets are reviewed periodically
relative to the corporation's risk profile and prevailing economic conditions.

      The corporation strives to maintain regulatory capital at approximately
 .75%-1.25% above the minimum regulatory requirements for a well-capitalized
institution, as defined in the FDIC Improvement Act. In addition, the
corporation currently has a tangible common equity-to-assets ratio target range
of 5.50%-6.00% and a total equity-to-assets target range of 7.25%-7.75%.

Capital Ratios

December 31
Dollars in millions                                       1998             1997
===============================================================================
Risk-adjusted assets                                  $104,372          $90,063
Tier 1 risk-based capital (4% minimum)                    7.08%            7.26%
Total risk-based capital (8% minimum)                    11.22            10.71
Leverage ratio (4% minimum)                               7.48             7.66
Common equity-to-assets                                   8.35             8.52
Total equity-to-assets                                    9.01             9.28
Tangible common equity-to-assets                          5.53             6.26
Tangible total equity-to-assets                           6.21             7.04
===============================================================================

At December 31, 1998, the corporation exceeded all regulatory required minimum
capital ratios and was categorized as well-capitalized. The corporation's
risk-based Tier 1 capital ratio decreased compared with December 31, 1997, due
mainly to growth in risk-adjusted assets. However, total risk-based capital
increased as the corporation issued $1.3 billion of subordinated debt during the
year. Excess capital, defined as common equity above the capital target, is
available for core business investments and acquisitions.

      As registered brokers-dealers and member firms of the NYSE, certain
subsidiaries are subject to rules of both the SEC and the NYSE. These rules
require registrants to maintain minimum levels of net capital, as defined, and
may restrict a member from expanding its business and declaring dividends as its
net capital approaches specified levels. At December 31, 1998, these
subsidiaries had net capital, in the aggregate, of approximately $349 million
which exceeded aggregate minimum net capital requirements by approximately $304
million. 

      During 1998, the corporation announced its intention to repurchase up to
$1.5 billion of its common stock from time-to-time as market conditions permit.
In addition, the corporation's Board of Directors authorized a 10% increase in
the quarterly stock dividend to $.27 per common share payable January 1, 1999.
The corporation also effected a two-for-one stock split of the corporation's
common stock on October 7, 1998.

COMPARISON OF 1997 AND 1996

Fleet reported net income for 1997 of $1.37 billion, or $2.30 per diluted share,
compared with $1.22 billion, or $1.98 per diluted share in 1996. ROA and ROE
were 1.58% and 19.30%, respectively, for 1997 compared with 1.40% and 17.68%,
respectively, in 1996. All prior periods have been restated to reflect the
merger of Quick & Reilly which was accounted for under the pooling-of-interests
method of accounting. In addition, all common share amounts and associated
ratios were adjusted to reflect the corporation's two-for-one common stock split
which was effective October 7, 1998.

      Net interest income on an FTE basis totaled $3.7 billion in 1997, compared
with $3.5 billion in 1996. The net interest margin for 1997 was 5.01%, compared
with 4.68% in 1996. The increase of 33 basis points was due principally to
increased loan fee revenue as well as a complete year's impact of a balance
sheet restructuring program undertaken during 1996 in connection with the
NatWest acquisition. This restructuring allowed the corporation to replace
lower-yielding assets and higher-cost sources of funds with a more favorable mix
of loans and core deposits.

      The provision for credit losses was $322 million in 1997 compared with
$213 million in 1996, with the increase due principally to a higher level of
bankruptcies and delinquencies in the consumer loan portfolio.

      Noninterest income increased $298 million to $2.6 billion in 1997. The
increase was due primarily to the inclusion of NatWest for four additional
months in 1997 as well as $175 million of net gains on sales of business units.

      Noninterest expense totaled $3.72 billion for 1997, compared with $3.51
billion in 1996. Expenses only increased slightly in 1997, as a result of the
successful integrations of NatWest and Shawmut National Corporation in
combination with the corporation's continuing cost containment efforts.

      Total loans at December 31, 1997 were $62.6 billion, compared with $59.9
billion at December 31, 1996. The increase is attributable to strong loan growth
in the commercial and industrial, lease financing and residential portfolios,
which was partially offset by the sale of $2.2 billion of indirect auto loans
and a $776 million and $485 million decline in commercial real estate and credit
card loans, respectively. 

      Total deposits decreased $3.3 billion to $63.7 billion at December 31,
1997. The decrease was due primarily to deposit runoff, which was anticipated as
a result of the corporation's efforts to maintain a competitive cost structure,
combined with the continued migration of deposits to higher-yielding investment
products. 


38
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS

RECENT ACCOUNTING DEVELOPMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes comprehensive
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
standard requires that all derivative instruments be recorded in the balance
sheet at fair value. However, the accounting for changes in fair value of the
derivative instrument depends on whether the derivative instrument qualifies as
a hedge. If the derivative instrument does not qualify as a hedge, changes in
fair value are reported in earnings when they occur. If the derivative
instrument qualifies as a hedge, the accounting treatment varies based on the
type of risk being hedged. The adoption of this standard may cause volatility in
both the income statement as well as the equity section of the balance sheet.
This standard is effective as of January 1, 2000. The impact of this Statement
is not estimable and will be dependent upon the fair value, nature and purpose
of the derivative instruments held by the corporation as of January 1, 2000.


                                                                              39
<PAGE>

MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS

The accompanying consolidated financial statements and related notes of the
corporation were prepared by management in conformity with generally accepted
accounting principles. Management is responsible for the integrity and fair
presentation of these financial statements.

      Management has in place an internal accounting control system designed to
safeguard corporate assets from material loss or misuse and to ensure that all
transactions are first properly authorized and then recorded in its records. The
internal control system includes an organizational structure that provides
appropriate delegation of authority and segregation of duties, established
policies and procedures, and comprehensive internal audit and loan review
programs. Management believes that this system provides assurance that the
corporation's assets are adequately safeguarded and that its records, which are
the basis for the preparation of all financial statements, are reliable.

      The Audit and Risk Management Committees of the Board of Directors consist
solely of directors who are not employees of the corporation or its
subsidiaries. During 1998, the Audit Committee met five times and the Risk
Management Committee met four times with internal auditors, credit review
management, the independent auditors, and representatives of senior management
to discuss the results of examinations and to review their activities to ensure
that each is properly discharging its responsibilities. The independent
auditors, internal auditors, and credit review management have direct and
unrestricted access to these committees at all times.

      The corporation's consolidated financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. Its independent
auditors' report, which is based on an audit made in accordance with generally
accepted auditing standards, expresses an opinion as to the fair presentation of
the consolidated financial statements. In performing its audit, KPMG Peat
Marwick LLP considers the corporation's internal control to the extent it deems
necessary in order to issue its opinion on the consolidated financial
statements.


      /s/ Terrence Murray                           /s/ Eugene M. McQuade

      Terrence Murray                               Eugene M. McQuade
      Chairman and                                  Vice Chairman and
      Chief Executive Officer                       Chief Financial Officer


40
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders of Fleet Financial Group, Inc.:

We have audited the accompanying consolidated balance sheets of Fleet Financial
Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fleet
Financial Group, Inc. and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.


      Boston, Massachusetts                           /s/ KPMG Peat Marwick LLP
      January 20, 1999


                                                                              41
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year ended December 31
Dollars in millions, except per share amounts                        1998     1997     1996
===========================================================================================
<S>                                                                <C>      <C>      <C>   
Interest and fees on loans                                         $5,878   $5,357   $5,169
Interest on securities                                                673      570      723
Other                                                                 214      164      136
-------------------------------------------------------------------------------------------
  Total interest income                                             6,765    6,091    6,028
-------------------------------------------------------------------------------------------
Interest expense:
  Deposits                                                          1,835    1,654    1,754
  Short-term borrowings                                               400      247      311
  Long-term debt                                                      448      338      390
  Other                                                               213      152      111
-------------------------------------------------------------------------------------------
   Total interest expense                                           2,896    2,391    2,566
-------------------------------------------------------------------------------------------
Net interest income                                                 3,869    3,700    3,462
-------------------------------------------------------------------------------------------
Provision for credit losses                                           470      322      213
-------------------------------------------------------------------------------------------
Net interest income after provision for credit losses               3,399    3,378    3,249
-------------------------------------------------------------------------------------------
Noninterest income:
  Investment services revenue                                         851      696      634
  Banking fees and commissions                                        748      708      601
  Capital markets revenue                                             530      326      269
  Processing-related revenue                                          457      473      503
  Credit card revenue                                                 391       62       59
  Net gains on sales of business units                                 --      175       --
  Other                                                               260      191      267
-------------------------------------------------------------------------------------------
   Total noninterest income                                         3,237    2,631    2,333
-------------------------------------------------------------------------------------------
Noninterest expense:
  Employee compensation and benefits                                1,927    1,752    1,735
  Equipment                                                           307      317      300
  Occupancy                                                           298      294      293
  Intangible asset amortization                                       227      169      140
  Legal and other professional                                        151      118      136
  Marketing                                                           132      109      106
  Merger-related charges                                               73       25       --
  Other                                                             1,014      931      802
-------------------------------------------------------------------------------------------
   Total noninterest expense                                        4,129    3,715    3,512
-------------------------------------------------------------------------------------------
Income before income taxes                                          2,507    2,294    2,070
Applicable income taxes                                               975      927      849
-------------------------------------------------------------------------------------------
Net income                                                         $1,532   $1,367   $1,221
===========================================================================================

Diluted weighted average common shares outstanding (in millions)    587.8    568.6    580.0
Net income applicable to common shares                             $1,481   $1,305   $1,149
Basic earnings per share                                             2.61     2.37     2.02
Diluted earnings per share                                           2.52     2.30     1.98
===========================================================================================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


42
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31
Dollars in millions, except share amounts                                                     1998        1997
==============================================================================================================
<S>                                                                                      <C>          <C>     
Assets
Cash, due from banks and interest-bearing deposits                                       $   5,635    $  5,076
Federal funds sold and securities purchased under agreements to resell                         103         498
Securities (market value: $10,797 and $9,367)                                               10,792       9,362
Loans                                                                                       69,396      62,565
Reserve for credit losses                                                                   (1,552)     (1,432)
--------------------------------------------------------------------------------------------------------------
Net loans                                                                                   67,844      61,133
--------------------------------------------------------------------------------------------------------------
Due from brokers/dealers                                                                     3,600       3,510
Mortgages held for resale                                                                    3,960       1,526
Premises and equipment                                                                       1,229       1,205
Mortgage servicing rights                                                                    1,405       1,768
Intangible assets                                                                            3,117       2,196
Other assets                                                                                 6,697       4,773
--------------------------------------------------------------------------------------------------------------
Total assets                                                                             $ 104,382    $ 91,047
==============================================================================================================
Liabilities
Deposits:
  Demand                                                                                 $  13,400    $ 13,148
  Regular savings, NOW, money market                                                        34,696      30,485
  Time                                                                                      21,582      20,102
--------------------------------------------------------------------------------------------------------------
   Total deposits                                                                           69,678      63,735
--------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase                   4,456       3,635
Other short-term borrowings                                                                  4,856       3,870
Due to brokers/dealers                                                                       3,975       4,316
Long-term debt                                                                               8,820       4,500
Accrued expenses and other liabilities                                                       3,188       2,539
--------------------------------------------------------------------------------------------------------------
   Total liabilities                                                                        94,973      82,595
--------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock                                                                                691         691
Common stock (571,168,358 shares issued in 1998 and 571,204,564 shares issued in 1997)           6           3
Common surplus                                                                               3,284       3,329
Retained earnings                                                                            5,337       4,437
Accumulated other comprehensive income                                                         128          97
Treasury stock, at cost (1,593,005 shares in 1998 and 3,878,928 shares in 1997)                (37)       (105)
--------------------------------------------------------------------------------------------------------------
   Total stockholders' equity                                                                9,409       8,452
--------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                               $ 104,382    $ 91,047
==============================================================================================================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                                                              43
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                  Accumulated  
                                                                 Common                                 Other  
                                                   Preferred   Stock at     Common    Retained  Comprehensive   Treasury
Dollars in millions, except per share amounts          Stock   $.01 Par    Surplus    Earnings         Income      Stock      Total
===================================================================================================================================
<S>                                                    <C>        <C>      <C>         <C>              <C>        <C>      <C>    
Balance at December 31, 1995                           $ 399      $   3    $ 3,226     $ 2,994          $  52      $  (7)   $ 6,667
Net income                                                --         --         --       1,221             --         --      1,221
Other comprehensive income:                                                                                    
   Net unrealized securities gains arising during                                                              
    the period, net of taxes of $3                        --         --         --          --              5         --         --
   Less: reclassification adjustment for net gains                                                             
    included in net income, net of taxes of $17           --         --         --          --             26         --         --
                                                                                                        -----
     Other comprehensive income                           --         --         --          --            (21)        --        (21)
                                                                                                                             ------
   Total comprehensive income                             --         --         --          --             --         --      1,200
Cash dividends declared on common stock                                                                        
  ($.87 per share)                                        --         --         --        (457)            --         --       (457)
Cash dividends declared on preferred stock                --         --         --         (69)            --         --        (69)
Cash dividends declared by pooled company prior                                                                
  to merger                                               --         --         --         (10)            --         --        (10)
Issuance of preferred stock                              650         --        (15)         --             --         --        635
Redemption of preferred stock                            (96)        --         --          (3)            --         --        (99)
Common stock issued in connection with:                                                                        
   Employee benefit plans                                 --         --         30         (31)            --         64         63
   Warrants                                               --         --         15          --             --         --         15
Treasury stock purchased                                  --         --         --          --             --       (105)      (105)
Other items, net                                          --         --        (33)         (5)            --        (12)       (50)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996                           $ 953      $   3    $ 3,223     $ 3,640          $  31      $ (60)   $ 7,790
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                --         --         --       1,367             --         --      1,367
Other comprehensive income:                                                                                    
   Net unrealized securities gains arising during                                                              
    the period, net of taxes of $54                       --         --         --          --             86         --         --
   Less: reclassification adjustment for net gains                                                             
    included in net income, net of taxes of $13           --         --         --          --             20         --         --
                                                                                                        -----
     Other comprehensive income                           --         --         --          --             66         --         66
                                                                                                                            -------
   Total comprehensive income                             --         --         --          --             --         --      1,433
Cash dividends declared on common stock                                                                        
  ($.92 per share)                                        --         --         --        (467)            --         --       (467)
Cash dividends declared on preferred stock                --         --         --         (62)            --         --        (62)
Cash dividends declared by pooled company                                                                      
  prior to merger                                         --         --         --          (7)            --         --         (7)
Redemption of preferred stock                           (178)        --         --          --             --         --       (178)
Common stock issued in connection with:                                                                        
   Employee benefit plans                                 --         --        (51)        (11)            --        162        100
   Reissuance of treasury stock                           --         --        161          --             --        595        756
   Acquisition of Nash Weiss & Co.                        --         --         16          --             --         --         16
Treasury stock purchased                                  --         --         --          --             --       (803)      (803)
Adjustment to retained earnings reflecting pooled                                                              
  entity different year-end                               --         --         --         (23)            --         --        (23)
Exchange of Series V preferred stock for trust                                                                 
   preferred securities                                  (84)        --         --          --             --         --        (84)
Other items, net                                          --         --        (20)         --             --          1        (19)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                           $ 691      $   3    $ 3,329     $ 4,437          $  97      $(105)   $ 8,452
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                --         --         --       1,532             --         --      1,532
Other comprehensive income:                                                                                    
   Net unrealized securities gains arising during                                                              
    the period, net of taxes of $51                       --         --         --          --             76         --         --
   Less: reclassification adjustment for net gains                                                             
    included in net income, net of taxes of $29           --         --         --          --             45         --         --
                                                                                                        -----
     Other comprehensive income                           --         --         --          --             31         --         31
                                                                                                                            -------
   Total comprehensive income                             --         --         --          --             --         --      1,563
Cash dividends declared on common stock                                                                        
  ($1.00 per share)                                       --         --         --        (568)            --         --       (568)
Cash dividends declared on preferred stock                --         --         --         (51)            --         --        (51)
Common stock issued in connection with:                                                                        
   Employee benefit plans                                 --         --        (40)        (15)            --        119         64
Treasury stock purchased                                  --         --         --          --             --        (51)       (51)
Two-for-one common stock split                            --          3         (3)         --             --         --         --
Other items, net                                          --         --         (2)          2             --         --         --
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                           $ 691      $   6    $ 3,284     $ 5,337          $ 128      $ (37)   $ 9,409
===================================================================================================================================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


44
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31
Dollars in millions                                                          1998         1997         1996
===========================================================================================================
<S>                                                                      <C>          <C>          <C>     
Cash flows from operating activities
Net income                                                               $  1,532     $  1,367     $  1,221
Adjustments for noncash items:
  Depreciation and amortization of premises and equipment                     247          213          200
  Amortization and impairment of mortgage servicing rights                    433          248          188
  Amortization of other intangible assets                                     227          169          140
  Provision for credit losses                                                 470          322          213
  Deferred income tax expense                                                 177          341          443
  Securities gains                                                            (74)         (33)         (43)
  Net gains on sales of business units                                         --         (175)          --
  Merger-related charges                                                       73           25           --
Originations and purchases of mortgages held for resale                   (30,273)     (15,400)     (18,760)
Proceeds from sales of mortgages held for resale                           27,839       14,997       20,025
Increase in due from brokers/dealers                                          (90)      (1,162)        (692)
Increase in accrued receivables, net                                         (145)        (132)        (430)
(Decrease) increase in due to brokers/dealers                                (341)       1,585          739
Increase (decrease) in accrued liabilities, net                               238           88         (229)
Other, net                                                                 (1,917)        (219)         468
-----------------------------------------------------------------------------------------------------------
   Net cash flow (used in) provided by operating activities                (1,604)       2,234        3,483
-----------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of securities available for sale                                 (5,516)      (3,998)      (5,682)
Proceeds from sales of securities available for sale                        3,000        2,766       16,313
Proceeds from maturities of securities available for sale                   1,085          884        4,161
Purchases of securities held to maturity                                   (1,234)      (1,428)      (1,125)
Proceeds from maturities of securities held to maturity                     1,415        1,317          791
Net cash and cash equivalents received (paid) for businesses acquired         380         (525)       2,386
Purchases of credit card loan portfolios                                   (1,870)          --           --
Net (increase) decrease in loans                                           (3,136)      (5,777)       1,617
Net cash and cash equivalents received from sales of business units            --        2,719           --
Net cash received from divestiture of assets and liabilities                   --           --          768
Purchases of mortgage servicing rights                                       (485)        (271)        (293)
Purchases of premises and equipment                                          (189)        (152)        (164)
-----------------------------------------------------------------------------------------------------------
   Net cash flow (used in) provided by investing activities                (6,550)      (4,465)      18,772
-----------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net increase (decrease) in deposits                                         3,357       (3,335)      (6,139)
Net increase (decrease) in short-term borrowings                            1,215        3,311      (10,300)
Proceeds from issuance of long-term debt                                    5,209          492          697
Repayments of long-term debt                                                 (889)      (1,106)      (2,108)
Proceeds from issuance of common stock                                         64          856           78
Proceeds from issuance of preferred stock                                      --           --          635
Redemption and repurchase of common and preferred stock                       (51)        (981)        (204)
Cash dividends paid                                                          (587)        (536)        (509)
-----------------------------------------------------------------------------------------------------------
   Net cash flow provided by (used in) financing activities                 8,318       (1,299)     (17,850)
-----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                          164       (3,530)       4,405
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                              5,574        9,104        4,699
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                 $  5,738     $  5,574     $  9,104
===========================================================================================================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                                                              45
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Summary of Significant Accounting Policies

The accounting and reporting policies of Fleet Financial Group (Fleet or the
corporation) conform to generally accepted accounting principles and prevailing
practices within the financial services industry. The corporation is a
diversified financial services company headquartered in Boston, Massachusetts,
and is organized along functional lines of business, which include: Commercial
Financial Services, Retail Banking, National Financial Services, Fleet
Investment Group, Treasury and all other.

      The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.

      The following is a summary of the significant accounting policies:

Basis of Presentation. The consolidated financial statements of Fleet include
the accounts of the corporation and its subsidiaries. All material intercompany
transactions and balances have been eliminated. Certain prior year amounts have
been reclassified to conform to current year classifications. All common share
amounts and associated ratios were adjusted to reflect the corporation's
two-for-one common stock split which was effective October 7, 1998.

Cash and Cash Equivalents. For purposes of the Consolidated Statements of Cash
Flows, the corporation defines cash and cash equivalents to include cash, due
from banks, interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.

Securities. Securities are classified at the time of purchase, based on
management's intentions, as held to maturity, available for sale or trading
account.

      Securities held to maturity are those that management has the positive
intent and ability to hold to maturity. Securities held to maturity are stated
at cost, net of the amortization of any premium and the accretion of any
discount. Securities available for sale are those that management intends to
hold for an indefinite period of time, including securities used as part of the
asset/liability management strategy, that may be sold in response to changes in
interest rates, prepayment risk, liquidity needs, the desire to increase capital
or other similar factors. Securities available for sale are recorded at their
fair value. Securities that do not have a readily determinable fair value are
stated at cost.

      Unrealized losses on an individual security deemed to be other than
temporary are written down to their fair value in the accounting period in which
such determination is made. The specific identification method is used to
determine gains and losses on sales of securities.

      Trading account securities, principally debt securities, and other trading
instruments, including foreign exchange and interest-rate derivatives, are
purchased and held primarily for the purpose of sale in the near term. Realized
and unrealized gains and losses on trading instruments are included in trading
revenue. Interest income realized on trading instruments is included in interest
income. 

      Securities owned and securities sold, but not yet purchased, are valued at
market and the resulting unrealized gains and losses are reflected in the
consolidated statements of income.

Loans. Loans are stated at the principal amounts outstanding, net of unearned
income. Loans are placed on nonaccrual status as a result of past-due status or
a judgment by management that, although payments are current, such action is
prudent. Except in the case of most consumer and residential real estate loans,
loans on which payments are past due 90 days or more are placed on nonaccrual
status, unless they are well-secured and in the process of collection or
renewal. Consumer loans, including residential real estate, are generally placed
on nonaccrual status at 180 days past due, or earlier if deemed to be
uncollectible, and losses are charged off no later than 180 days past due. When
a loan is placed on nonaccrual status, all interest accrued in the current year,
but uncollected, is reversed against interest income; prior year amounts are
charged against the reserve for credit losses. Cash receipts on nonaccruing
commercial loans are generally applied to reduce the unpaid principal balance,
and cash receipts on nonaccruing consumer loans are recognized in income on a
cash basis. Loans can be returned to accrual status when they become current as
to principal and interest or demonstrate a period of performance under the
contractual terms and, in management's opinion, are fully collectible.

Reserve for Credit Losses. The corporation continually evaluates the reserve for
credit losses by performing detailed reviews of certain individual loans,
reviewing historical net charge-off experience of the portfolio as a whole,
evaluating prevailing economic and business conditions, reviewing industry
concentrations, including emerging market risk, and changes in the size and
characteristics of the portfolio, as well as other pertinent factors. The
reserve for credit losses related to loans that are identified as impaired,
which are primarily commercial and commercial real estate loans on nonaccrual
status, is based on discounted cash flows using the loan's effective interest
rate, or the fair value of the collateral for collateral-dependent loans, or the
observable market price of the impaired loan. Based on these analyses, the
reserve for credit losses is maintained at levels considered adequate by
management to provide for loan losses inherent in these portfolios.

      Loans, or portions thereof, deemed uncollectible are charged off against
the reserve, while recoveries of amounts previously charged off are credited to
the reserve. Amounts are charged off once the probability of loss has been
established, giving consideration to such factors as the customer's financial
condition, underlying collateral and guarantees, and general and industry
economic conditions.

Mortgages Held for Resale. Mortgages held for resale are recorded at the lower
of aggregate cost or market value. Market value is determined by outstanding
commitments from investors or by current investor yield requirements.


46
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Servicing Rights (MSRs). The corporation recognizes rights to service
mortgage loans as separate assets. The total cost of mortgage loans sold or
securitized is allocated between loans and servicing rights based upon the
relative fair values of each. Purchased MSRs are initially recorded at fair
value. Capitalized MSRs are assessed for impairment based upon the fair value of
those rights. Fair values are estimated based on market prices for similar MSRs
and on the discounted anticipated future net cash flows considering market loan
prepayment predictions, interest rates, servicing costs and other economic
factors. For purposes of impairment evaluation and measurement, the corporation
stratifies MSRs based on predominant risk characteristics of the underlying
loans, including loan type, amortization type (fixed or adjustable) and note
rate. To the extent that the carrying value of MSRs exceeds fair value by
individual stratum, a valuation reserve is established, which is adjusted in the
future as the value of MSRs increases or decreases. The cost of MSRs is
amortized in proportion to and over the period of estimated net servicing
income.

Due to/Due from Brokers/Dealers. Receivables from brokers/dealers and clearing
organizations include amounts receivable for securities failed to deliver,
certain deposits for securities borrowed, amounts receivable from clearing
organizations relating to open transactions, good-faith and margin deposits, and
commissions and floor-brokerage receivables. Payables to brokers/dealers and
clearing organizations include amounts payable for securities failed to receive,
certain deposits received for securities loaned, amounts payable to clearing
organizations on open transactions, and floor-brokerage payables. In addition,
the net receivable or payable arising from unsettled trades is reflected in
these captions.

Intangible Assets. Intangible assets are generally amortized on a straight-line
basis over the estimated period benefited. The excess of cost over the fair
value of net assets acquired (goodwill) in business combinations is amortized
over appropriate periods given the characteristics of the assets acquired. In
certain acquisitions, a core deposit intangible asset is recorded and amortized
over a period not to exceed ten years. Purchased credit card intangibles are
amortized over a period not to exceed six years. The corporation periodically
reviews its intangible assets for events or changes in circumstances that may
indicate that the carrying amount of the assets may not be recoverable, in which
case an impairment charge may be recorded.

Income Taxes. The corporation records deferred tax assets and liabilities for
future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.

Risk-Management Activities. The corporation enters into certain interest-rate
instruments, including interest-rate swaps, cap and floor agreements, and
futures contracts to manage exposure to interest-rate risk associated with
interest-earning assets and interest-bearing liabilities. For those
interest-rate instruments that alter the repricing characteristics of assets or
liabilities, the net differential to be paid or received on the instruments is
treated as an adjustment to the yield on the underlying assets or liabilities
(the accrual method).

      To qualify for accrual accounting, the interest-rate instrument must be
designated to specific assets or liabilities or pools of similar assets or
liabilities and must effectively alter the interest-rate characteristics of the
related assets or liabilities. For instruments that are designated to
floating-rate assets or liabilities to be effective, there must be high
correlation between the floating interest-rate index on the underlying asset or
liability and the offsetting rate on the derivative. The corporation measures
initial and ongoing correlation by statistical analysis of the relative
movements of the interest-rate indices over time.

      If correlation were to cease on any interest-rate instrument hedging net
interest income, it would then be accounted for as a trading instrument. If an
interest-rate instrument hedging net interest income is terminated, the gain or
loss is deferred and amortized over the shorter of the remaining contractual
life of the terminated risk-management instrument or the maturity of the
designated asset or liability. If the designated asset or liability matures, is
sold, is settled or its balance falls below the notional amount of the
instrument, the hedge is usually terminated; if not, accrual accounting is
discontinued to the extent that the notional amount exceeds the balance, and
accounting for trading instruments is applied.

      The corporation also uses interest-rate instruments and combinations of
interest-rate instruments to hedge the value of the corporation's mortgage
servicing portfolio. Such instruments are designated as hedges of specific
strata of MSRs. To qualify for hedge accounting, net changes in value of the
hedges are expected to be highly correlated with changes in the value of the
hedged MSRs, and combinations of options purchased and sold must be entered into
simultaneously and result in a net purchased option position. Changes in the
value of risk-management instruments are treated as adjustments to the carrying
value of the hedged MSRs.

      If correlation were to cease on the interest-rate instrument hedging MSRs,
they would then be accounted for as trading instruments. If an interest-rate
instrument hedging MSRs is terminated, the gain or loss is treated as an
adjustment to the carrying value of hedged MSRs and amortized over its remaining
life.

Note 2.

Mergers, Acquisitions, and Divestitures

On February 1, 1998, the corporation consummated its acquisition of The Quick &
Reilly Group, Inc. (Quick & Reilly), one of the country's largest discount
brokerage


                                                                              47
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

firms. The acquisition was accounted for as a pooling-of-interests and,
therefore, these consolidated financial statements have been restated for all
periods presented to include the results of operations, financial position and
changes in cash flows of Quick & Reilly. Under the terms of the Quick & Reilly
merger, approximately 44 million Fleet common shares were exchanged for all of
the outstanding Quick & Reilly common shares at an exchange ratio of .289 shares
of Fleet for each share of Quick & Reilly.

      On February 20, 1998, the corporation consummated its acquisition of the
consumer credit card operations of Advanta Corporation. Since this acquisition
was accounted for under the purchase method of accounting, the results of the
acquisition are included for the periods subsequent to the acquisition date. The
acquisition provided approximately $11.5 billion of managed credit card
receivables, of which approximately $2 billion reside on the balance sheet in
consumer loans. Purchased credit card intangible of approximately $150 million
was recorded and is being amortized over 6 years. Additionally, goodwill of
approximately $500 million was recorded and is being amortized on a
straight-line basis over 15 years. Subject to the level of earnings, Fleet may
be required to make additional payments up to $100 million over 5 years, which
if paid, will be recorded as goodwill.

      On December 18, 1998, the corporation acquired Merrill Lynch Specialists,
Inc. (MLSI), a New York Stock Exchange (NYSE) specialist firm, from Merrill
Lynch & Co., Inc. The management staff and listings of MLSI merged with JJC
Specialist, a division of Fleet Securities, Inc. Goodwill of approximately $106
million was recorded and is being amortized on a straight-line basis over 15
years.

      During the fourth quarter of 1998, the corporation entered into a
definitive agreement with Sanwa Bank, Ltd. to purchase its subsidiary, Sanwa
Business Credit (Sanwa), a leasing and asset-based lending company. Sanwa offers
a wide variety of asset-based lending, equipment leasing and vendor finance
programs throughout the United States and has approximately $6 billion in
assets. This acquisition closed on February 1, 1999. Goodwill of approximately
$385 million was recorded and is being amortized on a straight-line basis over
25 years.

      On December 10, 1997, Fleet consummated its acquisition of Columbia
Management Company (Columbia), a Portland, Oregon-based asset management company
with approximately $21 billion of assets under management. Goodwill of
approximately $466 million was initially recorded in connection with this
transaction and is being amortized on a straight-line basis over 30 years. Fleet
may be required to make additional payments up to $110 million in accordance
with an earnout calculation which, if paid, will be recorded as goodwill. Fleet
accounted for this acquisition under the purchase method of accounting.
Accordingly, the corporation's financial statements include the effect of
Columbia for the periods subsequent to the December 10, 1997 acquisition date.

      During 1997, the corporation sold Option One, a mortgage banking
subsidiary; the corporate trust division; and its indirect auto lending
portfolio. The pretax net gain recorded on these sales totaled $175 million.

      On May 1, 1996, the corporation acquired from National Westminster Plc
substantially all of the net assets of certain subsidiaries of NatWest Bancorp
(NatWest). The acquisition of NatWest contributed approximately $13 billion and
$18 billion of loans and deposits, respectively, and approximately 300 branches
in New York and New Jersey. In accordance with the NatWest merger agreement,
Fleet paid a purchase price at closing of $2.7 billion. Goodwill of
approximately $660 million was initially recorded in connection with this
transaction and is being amortized on a straight-line basis over 15 years.
Subject to the level of earnings of NatWest, Fleet may be required to make
additional earnout payments of up to $560 million over eight years to be
recorded as goodwill, if paid, of which $142 million was paid in 1998 and $270
million to date. The transaction was accounted for under the purchase method of
accounting. Accordingly, the corporation's financial statements include the
effect of NatWest for the period subsequent to the May 1, 1996 acquisition date.

Note 3.

Securities

<TABLE>
<CAPTION>
                                                              1998                                           1997
                                                         Gross       Gross                             Gross       Gross
December 31                              Amortized  Unrealized  Unrealized     Market  Amortized  Unrealized  Unrealized    Market
Dollars in millions                           Cost       Gains      Losses      Value       Cost       Gains      Losses     Value
==================================================================================================================================
<S>                                        <C>         <C>         <C>        <C>        <C>         <C>         <C>       <C>    
Securities available for sale:                                                                                

  U.S. Treasury and government agencies    $   434     $     3     $    --    $   437    $ 1,126     $     8     $    --   $ 1,134

  Mortgage-backed securities                 7,784         200           2      7,982      6,177         123           2     6,298

  Other debt securities                        792          11           1        802        186           3          --       189
----------------------------------------------------------------------------------------------------------------------------------
   Total debt securities                     9,010         214           3      9,221      7,489         134           2     7,621
----------------------------------------------------------------------------------------------------------------------------------
  Marketable equity securities                 292          --          --        292        256          27           1       282

  Other securities                             211          --          --        211        210          --          --       210
----------------------------------------------------------------------------------------------------------------------------------
   Total securities available for sale       9,513         214           3      9,724      7,955         161           3     8,113
----------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:                                                                                  

  State and municipal                        1,056           5          --      1,061      1,238           5          --     1,243

  Other debt securities                         12          --          --         12         11          --          --        11
----------------------------------------------------------------------------------------------------------------------------------
   Total securities held to maturity         1,068           5          --      1,073      1,249           5          --     1,254
----------------------------------------------------------------------------------------------------------------------------------
Total securities                           $10,581     $   219     $     3    $10,797    $ 9,204     $   166     $     3   $ 9,367
==================================================================================================================================
</TABLE>


48
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Proceeds from sales of debt securities during 1998, 1997 and 1996 were $3
billion, $3 billion and $16 billion, respectively. Gross gains of $48 million
and gross losses of $7 million were realized on those sales in 1998, gross gains
of $19 million and gross losses of $9 million were realized on those sales in
1997, and gross gains of $73 million and gross losses of $48 million were
realized on those sales in 1996. Net realized gains on sales of marketable
equity securities were $33 million, $23 million and $18 million in 1998, 1997
and 1996, respectively.

      The amortized cost and estimated market value, by contractual maturity, of
debt securities held to maturity and securities available for sale are shown in
the following tables. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

Maturities of Securities Available for Sale

December 31, 1998              Within    1 to 5    5 to 10   After 10 
Dollars in millions            1 Year     Years      Years      Years     Total 
===============================================================================
Amortized cost:                          

  U.S. Treasury                          
   and government                        
   agencies                      $403      $ 10     $   21     $   --    $  434

  Mortgage-backed                        
   securities                      --         4      1,258      6,522     7,784

  Other debt securities             5       189        593          5       792
-------------------------------------------------------------------------------
Total debt securities            $408      $203     $1,872     $6,527    $9,010
-------------------------------------------------------------------------------
Percent of total                         
  debt securities                4.53%     2.25%     20.78%     72.44%      100%

Weighted average yield(a)        6.13      6.26       6.41       6.68      6.59
-------------------------------------------------------------------------------
Market value                     $410      $205     $1,899     $6,707    $9,221
===============================================================================
                                        
Maturities of Securities Held to Maturity

December 31, 1998              Within    1 to 5    5 to 10    After 10 
Dollars in millions            1 Year     Years      Years       Years    Total
===============================================================================
Amortized cost:                                              

  State and municipal          $  954    $   76     $   22      $    4   $1,056

  Other debt securities            --        12         --          --       12
-------------------------------------------------------------------------------
Total debt securities          $  954    $   88     $   22      $    4   $1,068
-------------------------------------------------------------------------------
Percent of total                                             
  debt securities               89.33%     8.24%      2.06%        .37%     100%

Weighted average yield(a)        5.70      7.83       9.07        6.60     5.93
-------------------------------------------------------------------------------
Market value                   $  954    $   90     $   25      $    4   $1,073
===============================================================================

(a)   A tax-equivalent adjustment has been included in the calculations of the
      yields to reflect this income as if it had been fully taxable. The
      tax-equivalent adjustment is based upon the applicable federal and state
      income tax rates.

Note 4.

Loans

<TABLE>
<CAPTION>
December 31
Dollars in millions                                     1998           1997           1996            1995           1994
=========================================================================================================================
<S>                                                 <C>             <C>            <C>             <C>            <C>    
Loans:

  Commercial and industrial                         $ 37,167        $32,000        $29,107         $23,052        $19,520

  Residential real estate                              9,314         10,019          8,048          11,475          8,529

  Consumer                                            13,316         11,493         13,642          10,796         11,700

  Commercial real estate:

   Construction                                        1,079            890          1,074             606            666

   Interim/permanent                                   4,295          4,787          5,379           4,414          4,789
-------------------------------------------------------------------------------------------------------------------------
    Loans, net of unearned income                     65,171         59,189         57,250          50,343         45,204
-------------------------------------------------------------------------------------------------------------------------
Lease financing:

  Lease receivables                                    4,316          3,342          2,587           2,267          1,765

  Estimated residual value                             1,075            936            688             520            212

  Unearned income                                    (1,166)           (902)          (664)          (564)           (494)
-------------------------------------------------------------------------------------------------------------------------
    Lease financing, net of unearned income(a)         4,225          3,376          2,611           2,223          1,483
-------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income                 $ 69,396        $62,565        $59,861         $52,566        $46,687
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)   The corporation's leases consist principally of full-payout, direct
      financing leases. The corporation's investment in leverage leases totaled
      $1,355 million and $935 million for 1998 and 1997, respectively. For
      federal income tax purposes, the corporation has the tax benefit of
      depreciation on the entire leased unit and interest on the long-term debt.
      Deferred taxes arising from leverage leases totaled $858 million in 1998
      and $503 million in 1997. Future minimum lease payments to be received are
      $608 million, 1999; $571 million, 2000; $480 million, 2001; $364 million,
      2002; $266 million, 2003; $2,027 million, 2004 and thereafter.


                                                                              49
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total loans increased $6.8 billion from $62.6 billion at December 31, 1997 to
$69.4 billion at December 31, 1998 due primarily to growth in the commercial and
industrial and lease financing portfolios, as well as purchases of various
credit card portfolios.

Concentrations of Credit Risk. Although the corporation is engaged in business
nationwide, the lending done by the banking subsidiaries is primarily
concentrated in New England, New York and New Jersey.

Note 5.

Reserve for Credit Losses

Year ended December 31
Dollars in millions                            1998          1997          1996
===============================================================================
Balance at beginning of year                $ 1,432       $ 1,488       $ 1,321

Provision charged to income                     470           322           213

Loans charged off                              (609)         (514)         (484)

Recoveries of loans charged off                 139           138           114

Acquisitions/other                              120            (2)          324
-------------------------------------------------------------------------------
Balance at end of year                      $ 1,552       $ 1,432       $ 1,488
===============================================================================

The reserve for credit losses increased $120 million from December 31, 1997, to
$1.552 billion at December 31, 1998. The 1998 provision for credit losses was
$470 million, $148 million higher than the prior year level of $322 million. The
increase in the provision for credit losses was due primarily to increased net
charge-offs in the credit card portfolio.

      "Acquisitions/Other" primarily related to the acquisitions of credit card
receivables in 1998, and NatWest in 1996, which added $120 million and $335
million to the reserves, respectively, offset by reserve transfers related to
assets held for sale by accelerated disposition.

Note 6.

Nonperforming Assets

December 31
Dollars in millions                1998      1997      1996      1995      1994
===============================================================================
Nonperforming loans:

  Current or less
   than 90 days
   past due                        $151      $216      $264      $157      $186

  Noncurrent                        114       176       432       283       480

Other real estate
  owned (OREO)                       17        24        27        59        95
-------------------------------------------------------------------------------
Total NPAs(a)                      $282      $416      $723      $499      $761
-------------------------------------------------------------------------------
NPAs as a percent
  of outstanding loans
  and OREO                          .41%      .66%     1.21%      .95%     1.63%
-------------------------------------------------------------------------------
Accruing loans
  contractually
  past due 90
  days or more                     $234      $202      $247      $198      $139
===============================================================================

(a)   Excludes $46 million, $214 million, and $265 million of NPAs classified as
      held for sale by accelerated disposition at December 31, 1998, 1997 and
      1996, respectively.

Nonperforming assets (NPAs) decreased $134 million from December 31, 1997 to
December 31, 1998, due primarily to declining levels of nonperforming assets in
all loan and OREO portfolios as a result of the successful resolution of certain
commercial and industrial and commercial real estate loans, as well as $33
million of nonperforming assets transferred to assets held for sale by
accelerated disposition.

      The gross interest income that would have been recorded if the
nonperforming loans had been current in accordance with their original terms,
and had been outstanding throughout the period (or since origination if held for
part of the period), was $20 million, $43 million and $71 million in 1998, 1997
and 1996, respectively. The actual amount of interest income on those loans
included in net income for the period was $10 million, $11 million and $18
million in 1998, 1997 and 1996, respectively.

      The following table displays the status of impaired loans, which are
primarily commercial and commercial real estate loans on nonaccrual status:

Impaired Loans

December 31
Dollars in millions                                           1998          1997
================================================================================
Impaired loans with a reserve                                 $121          $228

Impaired loans without a reserve                                99            95
--------------------------------------------------------------------------------
Total impaired loans                                          $220          $323
--------------------------------------------------------------------------------
Reserve for impaired loans(a)                                 $ 36          $ 63
--------------------------------------------------------------------------------
Average balance of impaired loans
  during the year ended December 31                           $248          $422
--------------------------------------------------------------------------------

(a)   The reserve for impaired loans is part of Fleet's overall reserve for
      credit losses.

Substantially all of the impaired loans were on nonaccrual status and the amount
of interest income recognized on impaired loans was not material. The
corporation had no material outstanding commitments to lend additional funds to
customers whose loans have been placed on nonaccrual status or the terms of
which have been modified.

Note 7.

Mortgage Servicing Rights

Year ended December 31
Dollars in millions                            1998          1997          1996
===============================================================================
Balance at beginning of year                $ 1,768       $ 1,566       $ 1,276

Additions                                       803           586           429

Sales                                           (66)          (20)          (39)

Deferred hedge (gain)/loss                     (667)         (116)           40

Amortization/Impairment charge                 (433)         (248)         (188)

Impairment reserve                               --            --            48
-------------------------------------------------------------------------------
Balance at end of year                      $ 1,405       $ 1,768       $ 1,566
-------------------------------------------------------------------------------

Various interest-rate instruments, which are designated as hedges of the MSRs,
are used to manage potential impairment. Changes in fair value of the hedges are
recorded as adjustments to the carrying value of the MSRs and related hedges.
During 1998 and 1997, net hedge gains of $667 million and $116 million,
respectively, were deferred and recorded as adjustments to the carrying value of
the MSRs and the related hedges. The aggregate fair value of the corporation's
MSRs was approximately $1.8 billion as of December 31, 1998. The level of
amortization increased due to an increase in prepayments resulting from a
decline in mortgage interest rates. (See Footnote 17 for further discussion of
MSR risk management).


50
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8.

Merger-Related Liabilities

During 1998 and 1997, the corporation incurred $73 million and $25 million,
respectively, of merger-related charges in connection with the acquisitions of
Quick & Reilly and the consumer credit card operations of Advanta. At December
31, 1998, the remaining accrued liabilities relating to these charges were $33
million. These charges are direct incremental costs associated with the
acquisitions and are presented in the following table:

Components of Merger-Related Charges

Year ended December 31
Dollars in millions                                        1998             1997
================================================================================
Professional fees                                           $ 8              $18

Personnel costs                                              30                7

Other expenses                                               35               --
--------------------------------------------------------------------------------
Total                                                       $73              $25
================================================================================

Professional fees pertain to investment banking, attorneys, and accounting fees.
Personnel costs relate primarily to the costs of employee severance, retention
payments, and employee assistance for separated employees. Other merger expenses
consist primarily of facilities-related exit costs, conversion costs and the
write off of various assets.

      In addition to the above merger-related charges, the corporation incurred
as part of the purchase of the consumer credit card operations of Advanta, $14
million of exit costs that were included in goodwill at the time of the
acquisition. An exit plan had been formulated at the acquisition date and
included a $3 million charge to write off certain facilities, and $11 million of
personnel expenses, primarily severance costs.

Note 9.

Short-Term Borrowings

<TABLE>
<CAPTION>
                                                                    Securities 
                                                       Federal      Sold Under                        Other          Total
                                                         Funds   Agreements to    Commercial     Short-Term     Short-Term
Dollars in millions                                  Purchased      Repurchase         Paper     Borrowings     Borrowings
==========================================================================================================================
<S>                                                     <C>             <C>             <C>          <C>            <C>   
1998                                                            
Balance at December 31                                  $1,857          $2,599        $  943         $3,913        $ 9,312
Highest balance at any month-end                         2,449           2,599           962          7,225         13,235
Average balance for the year                             1,892           2,328           863          3,317          8,400
Weighted average interest rate as of December 31          3.73%           3.88%         5.27%          4.55%          4.27%
Weighted average interest rate paid for the year          5.39            4.27          5.48           5.27           4.76
--------------------------------------------------------------------------------------------------------------------------
1997                                                            
Balance at December 31                                  $1,005          $2,630        $  811         $3,059        $ 7,505
Highest balance at any month-end                         2,002           2,630           940          3,733          9,305
Average balance for the year                               778           2,284           799          1,405          5,266
Weighted average interest rate as of December 31          5.92%           4.77%         5.77%          4.70%          5.06%
Weighted average interest rate paid for the year          5.52            4.48          5.51           4.20           4.69
--------------------------------------------------------------------------------------------------------------------------
1996                                                            
Balance at December 31                                  $  488          $2,382        $  676         $  648        $ 4,194
Highest balance at any month-end                         1,221           3,579         2,889          4,238         11,927
Average balance for the year                               838           2,730         1,368          1,415          6,351
Weighted average interest rate as of December 31          5.54%           4.72%         5.41%          4.44%          4.82%
Weighted average interest rate paid for the year          5.21            4.63          5.46           4.73           4.91
==========================================================================================================================
</TABLE>

Federal funds purchased and securities sold under agreements to repurchase 
generally mature within thirty days of the transaction date. The corporation 
generally maintains the control of the securities in repurchase transactions.

Commercial paper and other short-term borrowings generally mature within 90 
days, although commercial paper may have a term of up to 270 days. Total 
credit facilities available were $1 billion with no amount outstanding at 
December 31, 1998 and 1997.

                                                                              51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10.
Long-Term Debt
December 31                                     Maturity
Dollars in millions                                 Date        1998        1997
================================================================================
Senior notes and debentures:
Parent company:
  6.849% MTNs                                  1998-2005         $15        $165
  6.00% notes                                       1998          --         250
  7.25% notes                                       1999         200         200
  7.125% notes                                      2000         250         250
  Floating-rate notes                               2000          --          50
  Other                                             2013           1           1
--------------------------------------------------------------------------------
  Total parent company                                           466         916
--------------------------------------------------------------------------------
Affiliates:
  6.50% notes                                  1999-2000         350         350
  MTNs 6.24%-7.06%                             1998-2003         130         192
  FHLB borrowings                              1998-2018         238         244
  Floating-rate bank notes                     1999-2026       2,859          12
  Fixed-rate bank notes                        2000-2012         307           5
  Other                                        1998-2026          64          70
--------------------------------------------------------------------------------
  Total affiliates                                             3,948         873
--------------------------------------------------------------------------------
    Total senior notes and debentures                          4,414       1,789
--------------------------------------------------------------------------------
Subordinated notes and debentures:
  Floating-rate subordinated notes                  1998          --         100
  7.625%-9.85% subordinated notes                   1999         450         450
  9.00%-9.90% subordinated notes                    2001         325         325
  6.875%-7.20% subordinated notes                   2003         300         300
  8.125% subordinated notes                         2004         250         250
  8.625% subordinated notes                         2005         250         250
  7.125% subordinated notes                         2006         300         300
  8.625% subordinated notes                         2007         107         107
  6.375% subordinated notes                         2008         500          --
  7.00%-7.75% subordinated MTNs                2011-2013         320         295
  6.70%-6.875% subordinated notes                   2028         750          --
--------------------------------------------------------------------------------
  Total subordinated notes and debentures                      3,552       2,377
--------------------------------------------------------------------------------
Company-obligated mandatorily redeemable
  capital securities of Fleet Capital Trust:
  7.05%-8.00%                                                    604         334
  Floating-rate                                                  250          --
--------------------------------------------------------------------------------
Total long-term debt                                          $8,820      $4,500
================================================================================

Fleet has a shelf registration with the Securities and Exchange Commission
(SEC), providing for the issuance of common and preferred stock, senior or
subordinated debt securities, and other debt securities with $2.1 billion of
funds available at December 31, 1998.

      The corporation has five statutory business trusts, Fleet Capital Trust I
through Fleet Capital Trust V (Trust I through Trust V), of which the
corporation owns all of the common stock. These trusts exist for the sole
purpose of issuing trust securities and investing the proceeds thereof in an
equivalent amount of junior subordinated debt securities of Fleet.

      The sole assets of Trust I through Trust V are $84 million of 8.00%, $250
million of 7.92%, $120 million of 7.05%, $150 million of 7.17% and $250 million
of floating-rate notes, respectively, junior subordinated deferrable interest
debentures due in 2027, 2026, 2028, 2028 and 2028, respectively. The
floating-rate notes pay interest based on the three-month London Interbank
Offered Rate (LIBOR), reset quarterly. The junior subordinated debt securities
are unsecured obligations of Fleet and are subordinate and junior in right of
payment to all present and future senior and subordinated indebtedness and
certain other financial obligations of Fleet. The subordinated debentures and
related income statement effects are eliminated in the corporation's
consolidated financial statements. Fleet fully and unconditionally guarantees
each Trust's obligations under the preferred securities and capital securities.

      The fixed-rate subordinated notes all provide for single principal
payments at maturity with the exception of $150 million of 9.85% subordinated
notes and subordinated Medium-Term Notes (MTNs). The subordinated MTNs are
callable as follows: $100 million in 2000; $195 million in 2001; and $25 million
in 2002. The 9.85% subordinated notes mature on June 1, 1999, and at the
corporation's option, the notes will either be exchanged for common stock,
preferred stock, or certain other primary capital securities of the corporation
having a market value equal to the principal amount of the notes, or will be
repaid from the proceeds of other issuances of such securities. The corporation
may, however, at its option, revoke its obligation to redeem the notes with
capital securities based upon the capital treatment of the notes by its primary
regulator or consent by its primary regulator for such revocation. The holders
of the capital notes are subordinate in rights to depositors and other
creditors.

      During 1998, the corporation issued $1.3 billion of subordinated debt with
interest rates ranging from 6.375% to 7.00%. All of the parent company
fixed-rate senior notes pay interest semiannually, provide for single principal
payments and are not redeemable prior to maturity.

      Long-term senior borrowings of affiliates include $350 million of 6.50%
notes and $130 million of MTNs with rates ranging from 6.24% to 7.06% issued by
Fleet Mortgage Group.

      Fleet National Bank issued $3.1 billion of fixed- and floating-rate bank
notes during 1998. The fixed rates range from 6.45% to 7.18%. The floating-rate
bank notes pay interest at rates tied to one-month or three-month LIBOR reset
monthly or quarterly.

      As part of its interest-rate risk-management process, the corporation uses
interest-rate swaps to modify the repricing and maturity characteristics of
certain long-term debt. These interest-rate risk-management activities are
discussed in greater detail in Note 17 to the Consolidated Financial Statements.

      The aggregate payments required to retire long-term debt are: $873 million
in 1999; $2.511 billion in 2000; $1.487 billion in 2001; $88 million in 2002;
$401 million in 2003; $252 million in 2004; and $3.208 billion thereafter.


52
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11.

Preferred Stock

The following is a summary of the corporation's preferred stock outstanding at
December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                               Earliest
December 31                                    Stated            Outstanding  Outstanding    Redemption   Redemption       Interest
Dollars in millions, except per share amounts   Value    Shares      at 1998      at 1997          Date     Price(a)   Per Share(d)
===================================================================================================================================
<S>                                              <C>    <C>             <C>          <C>     <C>                <C>              <C>
7.25% Series V perpetual preferred               $250   765,000         $191         $191    04/15/2001         $250             10%

6.75% Series VI perpetual preferred               250   600,000          150          150    04/15/2006          250             20

6.60% Series VII cumulative preferred(b)          250   700,000          175          175    04/01/2006          250             20

6.59% Series VIII noncumulative preferred(c)      250   200,000           50           50    10/01/2001          250             20

9.35% cumulative preferred                        250   500,000          125          125    01/15/2000          250             10
-----------------------------------------------------------------------------------------------------------------------------------
Total preferred stock                                                   $691         $691                                          
===================================================================================================================================
</TABLE>

(a)   Plus accrued but unpaid dividends.
(b)   After April 1, 2006, the rate will adjust based on a U.S. Treasury
      security rate. 
(c)   After October 1, 2006, the rate will adjust based on a U.S. Treasury
      security rate.
(d)   Represents ownership interest in depositary shares.

Dividends on outstanding preferred stock issues are payable quarterly. All the
preferred stock outstanding has preference over the corporation's common stock
with respect to the payment of dividends and distribution of assets in the event
of a liquidation or dissolution of the corporation. Except in certain
circumstances, the holders of preferred stock have no voting rights.

Note 12.

Common Stock

At December 31, 1998, Fleet had 1.2 billion common shares authorized for
issuance with 569.6 million common shares outstanding. Shares reserved for
future issuance in connection with the corporation's stock plans, outstanding
rights and warrants, and stock options totaled 66 million.

      The following table presents the warrants that were outstanding as of
December 31, 1998:

Stock Warrants

December 31, 1998                                        Exercise     Expiration
Shares in millions                          Shares          Price           Date
================================================================================
                                              13.0        $  8.83        7/12/01

                                              4.9           21.94        1/27/01
================================================================================

During 1990, Fleet's Board of Directors declared a dividend of one preferred
share purchase right for each outstanding share of Fleet common stock (adjusted
to one-half of a right per share upon Fleet's two-for-one common stock split
which was effective October 7, 1998). Under certain conditions, a right may be
exercised to purchase 1/100 of the corporation's cumulative participating
preferred stock at a price of $50, subject to adjustment. The rights become
exercisable if a party acquires 10% or more (in the case of certain qualified
investors, 15% or more) of the issued and outstanding shares of Fleet common
stock, or after the commencement of a tender or exchange offer for 10% or more
of the issued and outstanding shares. When exercisable under certain conditions,
each right would entitle the holder to receive upon exercise of a right that
number of shares of common stock having a market value of two times the exercise
price of the right. The rights will expire in the year 2000 and may be redeemed
in whole, but not in part, at a price of $.005 per share at any time prior to
expiration or the acquisition of 10% of Fleet common stock.


                                                                              53
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Note 13.

Earnings Per Share

The following table presents a reconciliation of earnings per share as of
December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
December 31                                                1998                         1997                         1996
Dollars in millions, except per share amounts         Basic       Diluted          Basic       Diluted          Basic       Diluted
===================================================================================================================================
<S>                                             <C>           <C>            <C>           <C>            <C>           <C>        
Equivalent shares:

  Average shares outstanding                    568,059,117   568,059,117    551,956,482   551,956,482    568,896,262   568,896,262

Additional shares due to:

  Stock options                                          --     7,344,899             --     5,795,650             --     3,198,176

  Warrants                                               --    12,365,147             --    10,852,678             --     7,931,536
-----------------------------------------------------------------------------------------------------------------------------------
Total equivalent shares                         568,059,117   587,769,163    551,956,482   568,604,810    568,896,262   580,025,974
-----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:

  Net income                                         $1,532        $1,532         $1,367        $1,367         $1,221        $1,221

  Less preferred stock dividends                        (51)          (51)           (62)          (62)           (72)          (72)
-----------------------------------------------------------------------------------------------------------------------------------
Adjusted net income                                  $1,481        $1,481         $1,305        $1,305         $1,149        $1,149
-----------------------------------------------------------------------------------------------------------------------------------
Total equivalent shares                         568,059,117   587,769,163    551,956,482   568,604,810    568,896,262   580,025,974
-----------------------------------------------------------------------------------------------------------------------------------
Earnings per share on net income                      $2.61         $2.52          $2.37         $2.30          $2.02         $1.98
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Options and warrants to purchase 810,050 shares of common stock at exercise
prices between $40.22 and $44.16; 8,237,060 shares of common stock at exercise
prices between $31.88 and $37.02; and 7,704,930 shares of common stock at
exercise prices between $22.22 and $27.50 at December 31, 1998, 1997, and 1996,
respectively, were outstanding but not included in the computation of diluted
EPS because the options and warrants were antidilutive.

Note 14.

Management Reporting

The corporation has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for reporting information by operating
segment.

      Fleet Financial Group is managed through five principal business lines.
These are Commercial Financial Services, Retail Banking, National Financial
Services, Fleet Investment Group, and Treasury. Commercial Financial Services
includes traditional commercial banking, leasing and asset-based lending, as
well as investment banking, government banking, trade finance, and cash
management services. Retail Banking includes the distribution of consumer
financial services and small business lending and deposit services. The National
Financial Services business line includes mortgage banking, credit card
services, student loan processing, and venture capital, all marketed nationally.
Fleet Investment Group provides asset management services to institutional and
wealthy market clients, retail mutual fund and annuity sales, and brokerage,
market-making and securities clearing services. Treasury is responsible for
managing the corporation's securities and residential mortgage portfolios,
asset-liability management function and wholesale funding needs. All Other
includes unallocated support units, the management accounting control units and
certain transactions and events not allocated to specific business lines.
Management accounting control units includes management accounting offsets to
transfer pricing, equity, and provision allocations.

Management Reporting Policies

The financial performance of the corporation is monitored by an internal
profitability measurement system. Monthly financial statements are produced and
reviewed by senior management. Within business units, assets, liabilities, and
equity are match-funded utilizing similar maturity, liquidity and repricing
information. Additionally, equity, provision for credit losses and reserve for
credit losses are determined on an economic basis. The corporation has developed
a risk-adjusted methodology that quantifies risk types (e.g., credit and
operating risk) within business units and assigns capital accordingly. Provision
for credit losses and reserve for credit losses are allocated to each business
line based on economic modeling of long-term expected loss rates. Management
accounting policies are in place for assigning expenses that are not directly
incurred by businesses, such as overhead, operations and technology expense.
Internal users of these services meet with suppliers of services annually, and
are charged on an agreed-upon measure of usage. Management accounting concepts
are periodically refined and results are periodically restated to reflect
methodological and/or management organization changes.


54
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                       Commercial                 National        Fleet                                  Fleet
December 31, 1998                       Financial      Retail    Financial   Investment                       All    Financial
Dollars in millions                      Services     Banking     Services        Group     Treasury        Other        Group
==============================================================================================================================
<S>                                      <C>          <C>          <C>          <C>          <C>          <C>          <C>    
Income Statement Data:(a)

  Net interest income (FTE)              $ 1,316      $ 1,779      $   489      $   185      $   118      $    18      $ 3,905

  Noninterest income                         416          620        1,015        1,016          122           48        3,237
------------------------------------------------------------------------------------------------------------------------------
  Total revenue                            1,732        2,399        1,504        1,201          240           66        7,142

  Noninterest expense                        796        1,493          810          789           64          177        4,129

  Provision for credit losses                207          117          297            5           14         (170)         470

  Taxes/FTE adjustment                       285          362          155          169           35            5        1,011
------------------------------------------------------------------------------------------------------------------------------
  Net income                             $   444      $   427      $   242      $   238      $   127      $    54      $ 1,532
------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:

  Average total assets                   $44,021      $13,088      $12,952      $ 9,200      $18,088      $   659      $98,008

Other Financial Data (pre-tax):

  Return on Equity                         19.86%       24.34%       11.67%       21.31%       42.16%         n/m        18.07%

  Return on Assets                          1.01         3.26         1.87         2.59          .70          n/m         1.56

  Expenditures for long-lived assets     $     9      $    61      $    26      $     3      $    --      $    90      $   189

  Depreciation and amortization(b)            44          165          505           42            2          149          907

  Merger charges                                                                                               73           73
==============================================================================================================================

<CAPTION>
                                       Commercial                 National        Fleet                                  Fleet
December 31, 1997                       Financial      Retail    Financial   Investment                       All    Financial
Dollars in millions                      Services     Banking     Services        Group     Treasury        Other        Group
==============================================================================================================================
<S>                                      <C>          <C>          <C>          <C>          <C>          <C>          <C>    
Income Statement Data:(a)

  Net interest income (FTE)              $ 1,212      $ 1,862      $   289      $   170      $   115      $    91      $ 3,739

  Noninterest income                         389          578          522          811           87          244        2,631
------------------------------------------------------------------------------------------------------------------------------
  Total revenue                            1,601        2,440          811          981          202          335        6,370

  Noninterest expense                        740        1,482          452          651           64          326        3,715

  Provision for credit losses                218          119          203            5           15         (238)         322

  Taxes/FTE adjustment                       272          383           59          138           31           83          966
------------------------------------------------------------------------------------------------------------------------------
Net income                               $   371      $   456      $    97      $   187      $    92      $   164      $ 1,367
------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:

  Average total assets                   $38,664      $14,016      $ 8,345      $ 6,989      $15,664      $ 2,982      $86,660

Other Financial Data (pre-tax):

  Expenditures for long-lived assets     $     7      $    62      $    15      $    10      $     3      $    55      $   152

  Depreciation and amortization(b)            43          171          288           23            3          102          630

  Merger charges                                                                                               25           25
==============================================================================================================================

<CAPTION>
                                       Commercial                 National        Fleet                                  Fleet
December 31, 1996                       Financial      Retail    Financial   Investment                       All    Financial
Dollars in millions                      Services     Banking     Services        Group     Treasury        Other        Group
==============================================================================================================================
<S>                                      <C>          <C>          <C>          <C>          <C>          <C>          <C>    
Income Statement Data:(a)

  Net interest income (FTE)              $ 1,174      $ 1,691      $   266      $   161      $   149      $    57      $ 3,498

  Noninterest income                         321          430          598          710           73          201        2,333
------------------------------------------------------------------------------------------------------------------------------
  Total revenue                            1,495        2,121          864          871          222          258        5,831

  Noninterest expense                        750        1,512          510          569           82           89        3,512

  Provision for credit losses                196          107          125            5           18         (238)         213

  Taxes/FTE adjustment                       248          246           88          127           45          131          885
------------------------------------------------------------------------------------------------------------------------------
Net income                               $   301      $   256      $   141      $   170      $    77      $   276      $ 1,221
------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:

  Average total assets                   $34,401      $14,097      $ 9,081      $ 5,930      $21,847      $ 1,382      $86,738

Other Financial Data (pre-tax):

  Expenditures for long-lived assets     $    10      $    62      $    17      $     7      $     1      $    67      $   164

  Depreciation and amortization(b)            37          156          222           20            2           91          528
==============================================================================================================================
</TABLE>

(a)   Prepared on a fully taxable equivalent basis.

(b)   Includes amortization of mortgage servicing rights, core deposit
      intangibles, purchased credit card intangibles and goodwill.


                                                                              55
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15.

Employee Benefits

Stock Option Plan. The corporation has a stock option plan under which incentive
and nonqualified stock options are granted to certain employees for the purchase
of Fleet common stock at the fair value on the date of grant. Options granted
under the plan generally vest over a three- to five-year period and expire at
the end of ten years.

      The following tables summarize information about stock options outstanding
at December 31:

Stock Options

<TABLE>
<CAPTION>
December 31                                    1998                        1997                       1996
====================================================================================================================
                                                    Weighted                    Weighted                    Weighted
                                                     Average                     Average                     Average
                                                    Exercise                    Exercise                    Exercise
                                          Shares       Price          Shares       Price          Shares       Price
====================================================================================================================
<S>                                   <C>             <C>         <C>             <C>         <C>             <C>   
Outstanding at beginning of year      29,646,044      $23.35      26,108,868      $18.74      23,460,616      $15.92

Granted                               10,330,142       39.26       9,120,516       32.00       8,798,870       22.36

Exercised                             (3,447,862)      18.88      (4,035,500)      14.52      (5,141,958)      12.15

Forfeited                             (1,217,173)      26.50      (1,547,840)      19.58      (1,008,660)      18.54
--------------------------------------------------------------------------------------------------------------------
Outstanding at end of year            35,311,151      $28.32      29,646,044      $23.35      26,108,868      $18.74
--------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end       14,591,445      $21.45      10,981,724      $17.98       8,785,142      $14.86
====================================================================================================================
</TABLE>

Stock Options Outstanding and Exercisable

<TABLE>
<CAPTION>
December 31, 1998                             Options Outstanding                      Options Exercisable
==============================================================================================================
                                                    Weighted
                                                     Average          Weighted                        Weighted
                                   Number          Remaining           Average         Number          Average
Range of Exercise Prices      Outstanding   Contractual Life    Exercise Price    Outstanding   Exercise Price
==============================================================================================================
<S>                            <C>                 <C>                 <C>         <C>                 <C>    
$ 4- $18                        6,197,411          4.7 Years           $ 15.91      5,490,645          $ 15.62

$19- $24                       11,006,114          7.0 Years             21.89      6,579,651            21.90

$25- $45                       18,107,626          9.1 Years             36.48      2,521,149            32.96
--------------------------------------------------------------------------------------------------------------
$ 4- $45                       35,311,151          7.7 Years           $ 28.32     14,591,445          $ 21.45
==============================================================================================================
</TABLE>

Restricted Stock Plan. The corporation maintains restricted stock plans under
which key employees are awarded shares of the corporation's common stock subject
to certain vesting requirements.

      Certain restricted stock granted in 1998, 1997 and 1996 vests, in whole or
in part, only if certain preestablished performance goals are attained. The
performance periods range from two to five years. The remaining restricted stock
vests over three years. During 1998, 1997 and 1996, grants of 538,000; 475,000;
and 194,000 shares, respectively, of restricted stock were made. As of December
31, 1998, 1997 and 1996, outstanding shares totaled 954,333; 629,000; and
609,500, respectively, with average grant prices of $36.18, $29.85 and $17.84,
respectively. Compensation cost recognized for restricted stock during 1998,
1997 and 1996 was $9 million, $7 million and $3 million, respectively.

Pro Forma Fair Value Information. The corporation has adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." This standard defines a fair
value-based method of accounting for employee stock options and similar equity
instruments, but permits companies to continue to use the intrinsic value-based
method. The corporation has elected to continue the intrinsic value-based
method. Pro forma net income and earnings per share information, as required by
SFAS No. 123, has been calculated as if the corporation had accounted for
employee stock options and other stock-based compensation under the fair value
method. The fair value was estimated as of the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 4.33% for 1998, 6.09% for 1997 and
6.37% for 1996, a dividend yield approximating the current yield, volatility of
the corporation's common stock of 26% for 1998 and 25% for 1997 and 1996. The
weighted average expected life of the stock options is 7 years. The weighted
average grant date fair values of stock options granted during 1998, 1997 and
1996 were $10.28, $8.95 and $6.19, respectively.

      The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the use of highly
subjective assumptions, including the expected stock price volatility. Because
the corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock-based compensation.

      For purposes of pro forma disclosures, the estimated fair value is
amortized on a straight-line basis over the vesting period.


56
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Information

Dollars in millions,
except per share amounts                            1998        1997        1996
================================================================================
Net income                       As reported      $1,532      $1,367      $1,221
                                 Pro forma         1,500       1,346       1,212

Diluted earnings                 As reported        2.52        2.30        1.98
  per share                      Pro forma          2.48        2.27        1.97
================================================================================

Pension Plans. The corporation maintains noncontributory, defined benefit
pension plans covering substantially all employees. Effective January 1, 1997,
the corporation amended the defined benefit pension plan that covers the
majority of its employees from a final average pay plan to a cash balance plan.
Benefits are based on length of service, level of compensation and an interest
crediting rate. The amounts contributed to the plans are determined annually
based upon the amount needed to satisfy the Employment Retirement Income
Security Act (ERISA) funding standards. Assets of the plans are primarily
invested in listed stocks, corporate obligations, and U.S. Treasury and
government agency obligations.

      The corporation also maintains supplemental, noncontributory defined
benefit plans covering certain employees whose benefits exceed the Internal
Revenue Service limitation under the corporation's qualified defined benefit
plans.

Pension and Postretirement Benefit Plans

                                              Pension            Postretirement
                                             Benefits               Benefits
December 31                             ---------------------------------------
Dollars in millions                       1998       1997       1998       1997
===============================================================================
Change in benefit obligation

Benefit obligation at
  beginning of year                       $957       $868       $140       $139

Service cost                                41         40         --         --

Interest cost                               69         64          8         11

Participant contributions                   --         --          5          5

Plan amendments                             13        (51)        --         --

Benefits paid                             (108)       (81)       (20)       (24)

Actuarial loss or (gain)                    66        117        (12)         9
===============================================================================
Benefit obligation at
  end of year                           $1,038       $957       $121       $140
===============================================================================
Change in plan assets

Fair value of plan assets
  at beginning of year                  $1,055       $923        $19        $16

Actual return on plan assets               149        202          4          3

Employer contributions                      60         11         27         19

Participant contributions                   --         --          5          5

Benefits paid                             (108)       (81)       (20)       (24)
===============================================================================
Fair value of plan assets
  at end of year                        $1,156     $1,055        $35        $19
===============================================================================
Reconciliation of funded status

Funded status                             $118        $98       $(86)     $(121)

Unrecognized actuarial
  loss or (gain)                            80         54        (14)        (1)

Unrecognized transition
  (asset) or obligation                     (1)        (1)        62         66

Unrecognized prior
  service cost                               1         (6)        (1)        --
-------------------------------------------------------------------------------
Net amount recognized
  at year-end                             $198       $145       $(39)      $(56)
===============================================================================

The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $158 million, $112 million and $14 million, respectively, as
of December 31, 1998 and $139 million, $98 million and $12 million,
respectively, as of December 31, 1997.


                                                                              57
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pension and Postretirement Benefit Expense

<TABLE>
<CAPTION>
                                                          Pension Benefits                     Other Benefits
December 31                                        -----------------------------------------------------------------
Dollars in millions                                 1998        1997        1996        1998        1997        1996
====================================================================================================================
<S>                                                <C>         <C>         <C>         <C>         <C>         <C>  
Components of net periodic benefit costs

Service cost                                       $  41       $  40       $  43       $  --       $  --       $   1

Interest cost                                         69          64          57           8          11          10

Expected return on plan assets                      (105)        (90)        (75)         (2)         (2)         (1)

Net amortization and recognized actuarial loss         6          --           6           5           3           3
--------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                          $  11       $  14       $  31       $  11       $  12       $  13
--------------------------------------------------------------------------------------------------------------------
Assumptions as of December 31

Discount rate                                       6.75%       7.25%       7.85%       6.75%       7.25%       7.85%

Expected rate of return on plan assets             10.00       10.00       10.00       10.00       10.00       10.00

Rate of compensation increase                       5.00        5.00        5.00          --          --          --

Healthcare cost trend rate                            --          --          --        6.50        8.50        9.50
====================================================================================================================
</TABLE>

The corporation maintains various defined contribution savings plans covering
substantially all employees. The corporation's savings plan expense was $51
million, $50 million and $43 million for 1998, 1997 and 1996, respectively.

Postretirement Healthcare Benefits. In addition to providing pension benefits,
the corporation provides healthcare cost assistance and life insurance benefits
for retired employees. The cost of providing these benefits was $11 million, $12
million and $13 million in 1998, 1997 and 1996, respectively.

      The healthcare cost trend rate was 6.50% as of December 31, 1998,
decreasing gradually to 4.50% through the year 2001, and level thereafter. The
healthcare cost trend rate assumption has a minimal effect on the amounts
reported. A one-percentage point change in the assumed healthcare cost trend
rate would have had the following effects on 1998 service and interest cost and
the accumulated postretirement benefit obligation at December 31, 1998:

Healthcare Cost Trend

                                               One-Percentage    One-Percentage
Dollars in thousands                           Point Increase    Point Decrease
===============================================================================
Effect on total of service and interest                         
  cost components for 1998                               $195             $(190)

Effect on year-end 1998                                         
  postretirement benefit obligation                     2,141            (2,090)
===============================================================================

Note 16.

Income Taxes

The components of income tax expense for the years ended December 31, 1998, 1997
and 1996 were as follows:

Income Tax Expense

December 31
Dollars in millions                               1998         1997         1996
================================================================================
Current income taxes:

  Federal                                         $669         $512         $305

  State and local                                  129           74          101
--------------------------------------------------------------------------------
                                                   798          586          406
Deferred income tax expense:

  Federal                                          139          244          369

  State and local                                   38           97           74
--------------------------------------------------------------------------------
                                                   177          341          443
Total income tax expense:

  Federal                                          808          756          674

  State and local                                  167          171          175
--------------------------------------------------------------------------------
Applicable income taxes                           $975         $927         $849
================================================================================


58
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The income tax expense for the years ended December 31, 1998, 1997 and 1996,
varied from the amount computed by applying the statutory income tax rate to
income before taxes. A reconciliation between the statutory and effective tax
rates follows:

Statutory Rate Analysis

December 31                                         1998       1997       1996
==============================================================================
Tax at statutory rate                               35.0%      35.0%      35.0%

Increases (decreases) in taxes resulting from:

  State and local income taxes, net
   of federal income tax benefit                     4.3        4.9        6.4

  Goodwill amortization                              1.5        1.4        1.6

  Tax-exempt income                                 (1.1)      (1.0)      (1.0)

  Other, net                                        (0.8)       0.1       (1.0)
------------------------------------------------------------------------------
Effective tax rate                                  38.9%      40.4%      41.0%
==============================================================================

The corporation had $485 million and $521 million of state net operating loss
carryforwards at December 31, 1998 and 1997, respectively. These carryforwards
will begin to expire in 1999 and continue through 2013.

      Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amount used for income tax purposes.
Significant components of the corporation's deferred tax assets and deferred tax
liabilities as of December 31, 1998 and 1997, are presented in the following
table:

Net Deferred Tax Liability

December 31
Dollars in millions                                            1998         1997
================================================================================
Deferred tax assets:

  Reserve for credit losses                                    $538         $540

  Expenses not currently deductible                             111          248

  Other                                                         347          231
--------------------------------------------------------------------------------
   Total gross deferred tax assets                              996        1,019

    Less: valuation reserve                                      23           23
--------------------------------------------------------------------------------
   Total deferred tax assets                                    973          996
--------------------------------------------------------------------------------
Deferred tax liabilities:

  Lease financing                                             1,119          805

  Mortgage banking                                              162          292

  Other                                                         305          273
--------------------------------------------------------------------------------
   Total gross deferred tax liabilities                       1,586        1,370
--------------------------------------------------------------------------------
Net deferred tax liability                                     $613         $374
================================================================================

The corporation has evaluated the available evidence supporting the realization
of its gross tax assets of $973 million and $996 million at December 31, 1998
and 1997, respectively, including the amount and timing of future taxable
income, and has determined it is more likely than not that the asset will be
realized. Given the nature of state tax laws, the corporation believes that
uncertainty remains concerning the realization of tax benefits in various state
jurisdictions. State valuation reserves in the amount of $23 million,
established at December 31, 1997, are still in effect at December 31, 1998.
These benefits may, however, be recorded in the future either as they are
realized or, as it becomes more likely than not, that such tax benefits or
portions thereof will be realized.

Note 17.

Trading Activities, Other Derivative Financial
Instruments and Off-Balance Sheet Items

Trading Activities. All of the corporation's trading positions are currently
stated at market value with realized and unrealized gains and losses reflected
in other noninterest income. The following table represents the notional or
contractual amount of Fleet's off-balance sheet, interest-rate and foreign
exchange trading instruments and related credit exposure:

Trading Instruments with Off-Balance Sheet Risk

                                            Contract or
                                              Notional                Credit
December 31                                    Amount                Exposure
Dollars in millions                        1998       1997       1998       1997
================================================================================
Interest-rate contracts                 $16,570     $8,959       $165        $55

Foreign exchange contracts                2,429      2,395         30         53
================================================================================

Notional principal amounts are a measure of the volume of agreements transacted,
but the level of credit exposure is significantly less. The amount of credit
exposure can be estimated by calculating the cost to replace, on a present value
basis and at current market rates, all profitable contracts outstanding at
year-end. Credit exposure disclosures relate to accounting losses that would be
recognized if the counterparties completely failed to perform their obligations.
To manage its level of credit exposure, the corporation deals with
counterparties of good credit standing, establishes counterparty credit limits,
in certain cases has the ability to require securities collateral, and enters
into netting agreements whenever possible.

      The amounts disclosed below represent the end-of-period fair value of
derivative financial instruments held or issued for trading purposes and the
average aggregate fair values during the year for those instruments:

Trading Instruments

                                                     Fair Value         Average
December 31, 1998                                     (Carrying            Fair
Dollars in millions                                      Amount)          Value
===============================================================================
Interest-rate contracts:

  Assets                                                   $165            $130

  Liabilities                                              (136)           (103)

Foreign exchange contracts:

  Assets                                                    $30             $38

  Liabilities                                               (31)            (39)
===============================================================================


                                                                              59
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risk-Management Activities. The corporation's principal objective in holding or
issuing derivatives for purposes other than trading, is the management of
interest-rate risk.

      The major source of the corporation's non-trading interest-rate risk is
the difference in the repricing characteristics of the corporation's core
banking assets and liabilities - loans and deposits. This difference or mismatch
is a risk to net interest income. In managing net interest income, the
corporation uses interest-rate swaps to offset the general asset-sensitivity of
the core bank. Additionally, the corporation uses interest-rate swaps to offset
basis risk, including the specific exposure to changes in prime rate.

      A second major source of the corporation's non-trading interest-rate risk
is the sensitivity of its MSRs to prepayments. The mortgage borrower has the
option to prepay the mortgage loans at any time. When mortgage interest rates
decline, borrowers have a greater incentive to prepay mortgage loans through a
refinancing. To mitigate the risk of declining long-term interest rates,
increased mortgage prepayments, and the potential impairment of the MSRs, the
corporation uses a variety of risk-management instruments, including
interest-rate swaps, caps and floors, options on swaps, and exchange-traded
options on Treasury bond and note futures. These instruments gain value as
interest rates decline, mitigating the impairment of MSRs. Increases in the
value of these instruments and related cash flows aggregating $667 million were
recorded as adjustments to the carrying value of the MSRs during 1998.

      The following table presents the notional amount and fair value of
risk-management instruments at December 31, 1998 and 1997:

Risk-Management Instruments

                                                1998                 1997
December 31                             Notional      Fair   Notional      Fair
Dollars in millions                       Amount     Value    Amount      Value
===============================================================================
Interest-rate risk-management
  instruments:

  Receive-fixed/pay-variable             $12,048      $165     $9,509       $48

  Basis swaps                              2,779        --      2,729        (1)

Mortgage banking
  risk-management instruments:

  Receive-fixed/pay-variable,
   PO swaps                                7,011        83      2,502        --

  Interest-rate floors
   and options on swaps                   39,560       517     23,870       138

  Interest-rate caps and
   cap corridors                          14,759        68      4,309       (25)

  Call options purchased                   3,150        27         --        --

  Call options sold                          730        (5)        --        --
-------------------------------------------------------------------------------
Total risk-management
  instruments                            $80,037      $855    $42,919      $160
===============================================================================

Interest-rate swap agreements involve the exchange of fixed- and variable-rate
interest payments based upon a notional principal amount and maturity date.
Interest-rate basis swaps involve the exchange of floating-rate interest
payments based on various indices, such as U.S. Treasury bill and LIBOR. In a
purchased interest-rate floor agreement, cash interest payments are received
only if current interest rates fall below a predetermined interest rate.
Purchased or sold interest-rate cap agreements are similar to interest-rate
floor agreements except that cash interest payments are received or made only if
current interest rates rise above predetermined interest rates. Options on swap
agreements provide the holder the right to enter into an interest-rate swap at a
predetermined rate and time in the future.

      The corporation's interest-rate risk-management instruments had credit
exposure of $258 million at December 31, 1998, versus $61 million at December
31, 1997. The corporation's mortgage banking risk-management instruments had
credit exposure of $349 million at December 31, 1998, versus $114 million at
December 31, 1997. The increase in the credit exposure from year-to-year mainly
reflects the increase in the market value of the remaining risk-management
instruments. The periodic net settlement of interest-rate risk-management
instruments is recorded as an adjustment to net interest income and generated
$45 million, $52 million and $12 million of net interest income during 1998,
1997 and 1996, respectively. As of December 31, 1998, the corporation had net
deferred income of $11.5 million related to terminated interest-rate swap
contracts, which will be amortized over the remaining life of the underlying
terminated contracts of approximately 8 years.

Other Financial Instruments

                                                                  Contract or
December 31                                                     National Amount
Dollars in millions                                              1998       1997
================================================================================
Other financial instruments whose notional or
  contractual amounts exceed the amount of
  potential credit risk:

  Commitments to sell loans                                    $6,069     $2,247

  Commitments to originate or purchase loans                    3,206      1,308

Financial instruments whose notional or contractual
  amounts represent potential credit risk:

  Commitments to extend credit                                105,706     50,865

  Letters of credit, financial guarantees and foreign
   office guarantees (net of participations)                    6,092      4,996

  Assets sold with recourse                                     9,122        386
================================================================================

Commitments to sell loans have off-balance sheet market risk to the extent that
the corporation does not have available loans to fill those commitments, which
would require the corporation to purchase loans in the open market. Commitments
to originate or purchase loans have off-balance sheet market risk to the extent
the corporation does not have matching commitments to sell loans obtained under
such commitments, which could expose the corporation to lower-of-cost or
market-valuation adjustments in a rising interest-rate environment.

      Commitments to extend credit are agreements to lend to customers in
accordance with contractual provisions. These commitments usually are for
specific periods or contain termination clauses and may require the payment of a
fee. The total amounts of unused commitments do not necessarily represent future
cash requirements in that commitments often expire without being drawn upon.


60
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments to Extend Credit

December 31
Dollars in millions                                            1998         1997
================================================================================
Commercial and industrial loans                             $39,837      $34,059

Revolving, open-end loans secured by residential
  properties (e.g., home equity lines)                        3,672        3,641

Credit card lines                                            53,546        6,919

Residential mortgages                                         3,542        1,531

Commercial real estate                                        2,461        1,776

Other unused commitments                                      2,648        2,939
--------------------------------------------------------------------------------
Total                                                      $105,706      $50,865
================================================================================

Letters of credit and financial guarantees are agreements whereby the
corporation guarantees the performance of a customer to a third party.
Collateral is required to support letters of credit in accordance with
management's evaluation of the creditworthiness of each customer. The credit
exposure assumed in issuing letters of credit is essentially equal to that in
other lending activities. Management does not anticipate any material losses as
a result of these transactions.

Note 18.

Fair Value of Financial Instruments

Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and relevant market information.
Where available, quoted market prices are used. In other cases, fair values are
based on estimates using present value or other valuation techniques. These
techniques involve uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future
expected loss experience, and other factors. Changes in assumptions could
significantly affect these estimates and the resulting fair values. Derived fair
value estimates cannot necessarily be substantiated by comparison to independent
markets and, in many cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and assumptions used
to estimate fair values, Fleet's fair values should not be compared to those of
other financial institutions.

      Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not purport to
represent the underlying market value of the corporation.

      The following describes the methods and assumptions used by Fleet in
estimating the fair values of financial instruments.

      Cash and Cash Equivalents. The carrying amounts reported in the balance
sheet approximate fair values because maturities are less than 90 days.

Securities. Fair values are based primarily on quoted market prices.

Loans. The fair values of certain commercial and consumer loans are estimated by
discounting the contractual cash flows using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality. The
carrying value of certain other loans approximates fair value due to the
short-term and/or frequent repricing characteristics of these loans. The fair
value of the credit card portfolio excludes the value of the ongoing customer
relationships, a factor that can represent a significant premium over the
carrying value. For residential real estate loans, fair value is estimated by
reference to quoted market prices. For nonperforming loans and certain loans
where the credit quality of the borrower has deteriorated significantly, fair
values are estimated by discounting expected cash flows at a rate commensurate
with the risk associated with the estimated cash flows, based on recent
appraisals of the underlying collateral, or by reference to recent loan sales.

Mortgages Held for Resale. Fair value is estimated using the quoted market
prices for securities backed by similar types of loans and current dealer
commitments to purchase loans. These loans are priced to be sold with servicing
rights retained.

Deposits. The fair value of deposits with no stated maturity or a maturity of
less than 90 days is considered to be equal to the carrying amount. The fair
value of time deposits is estimated by discounting contractual cash flows using
interest rates currently offered on the deposit products. The fair value
estimates for deposits do not include the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost of alternative
forms of funding (core deposit intangibles).

Short-Term Borrowings. Short-term borrowings generally mature in 90 days or less
and, accordingly, the carrying amount reported in the balance sheet approximates
fair value.

Long-Term Debt. The fair value of Fleet's long-term debt, including the
short-term portion, is estimated based on quoted market prices for the issues
for which there is a market or by discounting cash flows based on current rates
available to Fleet for similar types of borrowing arrangements.

Off-Balance Sheet Instruments. Fair values for off-balance sheet instruments are
estimated based on quoted market prices or dealer quotes and is the amount the
corporation would receive or pay to execute a new agreement with identical terms
considering current interest rates.


                                                                              61
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

                                                 1998                 1997
December 31                              Carrying      Fair   Carrying     Fair
Dollars in millions                         Value     Value      Value    Value
===============================================================================
On-balance sheet financial assets:       

  Financial assets for which             
   carrying value approximates           
   fair value                              $6,288    $6,288     $6,085   $6,085

  Securities                               10,792    10,797      9,362    9,367

  Loans(a)                                 63,679    65,251     57,805   59,146

  Mortgages held for resale                 3,960     3,960      1,526    1,526

  Trading account securities                  355       355        290      290

  Trading instruments                         195       195        108      108

  Other                                     1,046     1,046        412      412

On-balance sheet financial liabilities:  

  Deposits with no stated maturity         48,096    48,096     43,633   43,633

  Time deposits                            21,582    22,023     20,102   20,470

  Short-term borrowings                     9,312     9,312      7,505    7,505

  Long-term debt                            8,820     9,104      4,500    4,612

  Trading instruments                         167       167         92       92

  Other                                       261       261        212      212

Off-balance sheet financial              
  instruments:                           

  Interest-rate risk-management          
   instruments                                 32       165          1       47

  Commitments to originate               
   or purchase loans                           --        15         --        7

  Commitments to sell loans                     2        (1)         1       (5)
===============================================================================

(a)   Excludes net book value of leases of $4,165 million and $3,328 million at
      December 31, 1998 and 1997, respectively.

Certain assets which are not financial instruments and, accordingly, are not
included in the above fair values, contribute substantial value to the
corporation in excess of the related amounts recognized in the balance sheet.
These include the core deposit intangibles and the related retail banking
network, the value of customer relationships associated with certain types of
consumer loans (particularly the credit card portfolio), lease financing
business, and mortgage servicing rights.

Note 19.

Commitments, Contingencies, and Other Disclosures

The corporation and its subsidiaries are involved in various legal proceedings
arising out of, and incidental to, their respective businesses. Management of
the corporation, based on its review with counsel of the development of these
matters to date, does not anticipate that any losses incurred as a result of
these legal proceedings would have a materially adverse effect on the
corporation's financial position.

Lease Commitments. The corporation has entered into a number of noncancelable
operating lease agreements for premises and equipment. The minimum annual rental
commitments under these leases at December 31, 1998, exclusive of taxes and
other charges, were as follows: $133 million, 1999; $117 million, 2000; $102
million, 2001; $86 million, 2002; $62 million, 2003; and $243 million, 2004 and
thereafter. Total rental expense for 1998, 1997 and 1996, including cancelable
and noncancelable leases, amounted to $137 million, $136 million and $144
million, respectively.

      Certain leases contain escalation clauses, which correspond with increased
real estate taxes and other operating expenses, and renewal options calling for
increased rents as the leases are renewed. No restrictions are imposed by any
lease agreement regarding the payment of dividends, additional debt financing,
or entering into further lease agreements.

Transaction and Dividend Restrictions. Fleet's banking subsidiaries are subject
to restrictions under federal law that limit the transfer of funds by the
subsidiary banks to Fleet and its nonbanking subsidiaries. Such transfers by any
subsidiary bank to Fleet or any nonbanking subsidiary are limited in amount to
10% of the bank's capital and surplus.

      Various federal and state banking statutes limit the amount of dividends
the subsidiary banks can pay to Fleet without regulatory approval. The payment
of dividends by any subsidiary bank may also be affected by other factors such
as the maintenance of adequate capital for such subsidiary bank. Various
regulators and the Boards of Directors of the affected institutions continue to
review dividend declarations and capital requirements of Fleet and its
subsidiaries consistent with current earnings, future earning prospects, and
other factors.

Restrictions on Cash and Due from Banks. The corporation's banking subsidiaries
are subject to requirements of the Federal Reserve Board (the Federal Reserve)
to maintain certain reserve balances. At December 31, 1998 and 1997, these
reserve balances were $1,132 million and $1,110 million, respectively.


62
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20.

Regulatory Matters

As a bank holding company, Fleet is subject to regulation by the Federal
Reserve, the Office of the Comptroller of the Currency (OCC) and the Office of
Thrift Supervision (OTS), as well as state regulators. Under the regulatory
capital adequacy guidelines and FDIC Improvement Act (FDICIA), Fleet and its
banking subsidiaries must meet specific capital requirements. These requirements
are expressed in terms of the following ratios: (1) Risk-based Total Capital
(Total Capital/risk-weighted on- and off-balance sheet assets); (2) Risk-based
Tier 1 Capital (Tier 1 Capital/risk-weighted on- and off-balance sheet assets);
and (3) Leverage (Tier 1 Capital/average quarterly assets).

      To meet all minimum regulatory capital requirements, Fleet and its banking
subsidiaries must maintain a minimum risk-based Total Capital ratio of at least
8%, risk-based Tier 1 Capital ratio of at least 4%, and Tier 1 Leverage ratio of
at least 4%. Failure to meet minimum capital requirements can initiate certain
mandatory- and possibly discretionary-actions by regulators that, if undertaken,
could have a direct material effect on financial statements. To be categorized
as well-capitalized under the prompt corrective action provision of FDICIA,
Fleet's banking subsidiaries must maintain a risk-based Total Capital ratio of
at least 10%, a risk-based Tier 1 Capital ratio of at least 6%, and a Leverage
ratio of at least 5%, and not be subject to a written agreement, order or
capital directive. Neither Fleet nor any of its subsidiaries has entered into
formal written agreements with state and federal regulators or are subject to
any orders or capital directives.

      The following table presents capital information for the corporation as of
December 31, 1998 and 1997:

Regulatory Capital Ratios

December 31
Dollars in millions                             1998                 1997
===============================================================================
Actual:

  Risk-Based Tier 1 Capital               $7,385      7.08%    $6,542      7.26%

  Risk-Based Total Capital                11,706     11.22      9,649     10.71

  Leverage                                 7,385      7.48      6,542      7.66

Minimum regulatory capital standards:    

  Risk-Based Tier 1 Capital                4,175      4.00      3,603      4.00

  Risk-Based Total Capital                 8,350      8.00      7,205      8.00

  Leverage                                 3,947      4.00      3,416      4.00
===============================================================================

As of December 31, 1998, Fleet's banking subsidiaries were all categorized as
well-capitalized. There are no conditions or events since that date that
management believes have changed the institutions category.

      As registered broker-dealers and member firms of the NYSE, certain
subsidiaries are subject to rules of both the SEC and the NYSE. These rules
require registrants to maintain minimum levels of net capital, as defined, and
may restrict a member from expanding its business and declaring dividends as its
net capital approaches specified levels. At December 31, 1998, the subsidiaries
had net capital, in the aggregate, of approximately $349 million, which exceeded
aggregate minimum net capital requirements by approximately $304 million.

Note 21.

Disclosure for Statements of Cash Flows

Cash Flow Disclosure

Year ended December 31
Dollars in millions                                 1998       1997        1996
===============================================================================
Supplemental disclosure for cash
  paid during the period for:

  Interest expense                                $2,861     $2,484     $ 2,531

  Income taxes, net of refund                        593        428         356
-------------------------------------------------------------------------------
Supplemental disclosure of non-cash
  investing and financing activities:

  Transfer of loans to foreclosed property
   and repossessed equipment                      $   15     $   30     $    27

  Securitization of residential loans                 --         --       1,998

  Retirement of common stock                          --         --          34

  Transfer of assets to held for sale
   by accelerated disposition                         33        231         110

  Adjustment to unrealized gain
   (loss) on securities available for sale            31         66         (21)
-------------------------------------------------------------------------------
Assets acquired and liabilities assumed
  in business combinations were as follows:

  Assets acquired, net of cash and cash
   equivalents received                           $2,845     $  544     $17,848

  Net cash and cash equivalents
   received (paid)                                   380       (523)      2,386

  Liabilities assumed                              3,225         21      20,234
-------------------------------------------------------------------------------
Divestitures:

  Assets sold, net of cash received               $   --     $2,552     $ 3,119

  Net cash received for divestitures                  --      2,719         768

  Liabilities sold                                    --         24       2,351
===============================================================================


                                                                              63
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 22.

Parent Company Only Financial Statements

Statements of Income

Year ended December 31
Dollars in millions                                  1998       1997       1996
===============================================================================
Dividends from subsidiaries:

  Banking subsidiaries                               $755     $1,098       $727

  Other subsidiaries                                  270        170        130

Interest income                                       246        192        205

Other                                                  43         35         38
-------------------------------------------------------------------------------
   Total income                                     1,314      1,495      1,100
-------------------------------------------------------------------------------
Interest expense                                      358        294        306

Noninterest expense                                    33         34         50
-------------------------------------------------------------------------------
   Total expenses                                     391        328        356
-------------------------------------------------------------------------------
Income before income taxes and equity in
  undistributed income of subsidiaries                923      1,167        744

Applicable income taxes (benefit)                     (43)       (61)       (47)
-------------------------------------------------------------------------------
Income before equity in undistributed
  income of subsidiaries                              966      1,228        791

Equity in undistributed income
  of subsidiaries                                     566        139        430
-------------------------------------------------------------------------------
Net income                                         $1,532     $1,367     $1,221
===============================================================================

Balance Sheets

December 31
Dollars in millions                                           1998          1997
================================================================================
Assets:

  Money market instruments                                    $582          $859

  Securities                                                     5            78

Loans receivable from:

  Banking subsidiaries                                       2,454         2,159

  Other subsidiaries                                         1,203           860
--------------------------------------------------------------------------------
                                                             3,657         3,019
Investment in subsidiaries:

  Banking subsidiaries                                       9,698         8,028

  Other subsidiaries                                           793           615
--------------------------------------------------------------------------------
                                                            10,491         8,643

Other                                                          826           532
--------------------------------------------------------------------------------
Total assets                                               $15,561       $13,131
================================================================================
Liabilities:

  Short-term borrowings                                       $988          $811

  Accrued liabilities                                          516           481

  Long-term debt                                             4,648         3,387
--------------------------------------------------------------------------------
Total liabilities                                            6,152         4,679
--------------------------------------------------------------------------------
Stockholders' equity                                         9,409         8,452
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity                 $15,561       $13,131
================================================================================
Statements of Cash Flows
Year ended December 31
Dollars in millions                                  1998       1997       1996
===============================================================================
Cash flows from operating activities:
Net income                                         $1,532     $1,367     $1,221
Adjustments for noncash items:
  Equity in undistributed income
   of subsidiaries                                   (566)      (139)      (430)
  Depreciation and amortization                        10         11         11
  Net securities gains                                (33)       (22)       (18)
Increase (decrease) in accrued
  liabilities, net                                     35        (11)       (26)
Other, net                                           (494)        54       (119)
-------------------------------------------------------------------------------
Net cash flow provided by
  operating activities                                484      1,260        639
-------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of securities                                --        (15)        (3)
Proceeds from sales and maturities
  of securities                                        80         58         65
Net increase in loans made to affiliates             (638)      (307)       (57)
Return of capital from subsidiaries                   112          3      1,756
Capital contributions to subsidiaries              (1,179)      (253)    (1,802)
-------------------------------------------------------------------------------
Net cash flow used in investing activities         (1,625)      (514)       (41)
-------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in short-term
  borrowings                                          177        135       (144)
Proceeds from issuance of long-term debt            1,811        281        650
Repayments of long-term debt                         (550)      (455)      (484)
Proceeds from issuance of common stock                 64        856         77
Proceeds from issuance of preferred stock              --         --        635
Redemption and repurchase of common
  and preferred stock                                 (51)      (981)      (204)
Cash dividends paid                                  (587)      (536)      (509)
-------------------------------------------------------------------------------
Net cash flow provided by (used in)
  financing activities                                864       (700)        21
-------------------------------------------------------------------------------
Net (decrease) increase in cash and
  cash equivalents                                   (277)        46        619
-------------------------------------------------------------------------------
Cash and cash equivalents at beginning
  of year                                             859        813        194
-------------------------------------------------------------------------------
Cash and cash equivalents at end of year             $582       $859       $813
===============================================================================


64
<PAGE>

SUPPLEMENTAL FINANCIAL INFORMATION

Rate/Volume Analysis (Unaudited)

<TABLE>
<CAPTION>
                                                    1998 Compared to 1997            1997 Compared to 1996
                                                Increase (Decrease) Due to(a)     Increase (Decrease) Due to(a)
---------------------------------------------------------------------------------------------------------------
Dollars in millions                             Volume       Rate         Net    Volume       Rate          Net
===============================================================================================================
<S>                                               <C>       <C>          <C>       <C>        <C>          <C> 
Interest earned on:(b)                                                                                  

  Interest-bearing deposits                       $  8      $  (1)       $  7      $  3       $ --         $  3

  Federal funds sold and securities purchased                                                           
   under agreements to resell                       (7)        (1)         (8)      (16)         1          (15)

  Trading account securities                         5         --           5        --          2            2

  Securities available for sale                    103        (11)         92      (193)        32         (161)

  Securities held to maturity                       --         (2)         (2)      (10)         4           (6)

  Nontaxable securities                              8         --           8        17         (1)          16

  Loans                                            543        (57)        486       262         42          304

  Due from brokers/dealers                          43          8          51        32          6           38

  Mortgages held for resale                         84         (7)         77       (36)        (4)         (40)

  Assets held for disposition                      (22)       (23)        (45)      (40)       (35)         (75)
---------------------------------------------------------------------------------------------------------------
   Total interest-earning assets                   765        (94)        671        19         47           66
---------------------------------------------------------------------------------------------------------------
Interest paid on:                                                                                       

  Deposits-                                                                                             

   Savings                                          24         31          55        22        (17)           5

   Time                                            104         21         125       (49)       (56)        (105)
---------------------------------------------------------------------------------------------------------------
    Total interest-bearing deposits                128         52         180       (27)       (73)        (100)
---------------------------------------------------------------------------------------------------------------
  Short-term borrowings                            149          4         153       (51)       (13)         (64)

  Due to brokers/dealers                            48         14          62        36          5           41

  Long-term debt                                   119         (9)        110       (66)        14          (52)
---------------------------------------------------------------------------------------------------------------
   Total interest-bearing liabilities              444         61         505      (108)       (67)        (175)
---------------------------------------------------------------------------------------------------------------
Net interest differential(c)                      $321      $(155)       $166      $127       $114         $241
===============================================================================================================
</TABLE>

(a)   The change in interest due to both rate and volume has been allocated to
      rate and volume changes in proportion to the relationship of the absolute
      dollar amounts of the changes in each.

(b)   Tax-equivalent adjustment has been included in the calculations to reflect
      this income as if it had been fully taxable. The tax-equivalent adjustment
      is based upon the applicable federal and state income tax rates. The FTE
      adjustment included in interest income was $36 million in 1998, $40
      million in 1997 and $36 million in 1996.

(c)   Includes fee income of $272 million, $210 million and $165 million for the
      years ended December 31, 1998, 1997 and 1996, respectively.

Quarterly Summarized Financial Information (Unaudited)

<TABLE>
<CAPTION>
By quarter
Dollars in millions,                                 1998                                         1997
except per share amounts             1        2        3        4     Year        1        2        3        4     Year
=======================================================================================================================
<S>                             <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>   
Interest income                 $1,594   $1,716   $1,729   $1,726   $6,765   $1,490   $1,507   $1,540   $1,554   $6,091

Interest expense                   665      744      759      728    2,896      581      583      606      621    2,391
-----------------------------------------------------------------------------------------------------------------------
Net interest income                929      972      970      998    3,869      909      924      934      933    3,700
-----------------------------------------------------------------------------------------------------------------------
Provision for credit losses         92      118      120      140      470       65       83       85       89      322
-----------------------------------------------------------------------------------------------------------------------
Net interest income after
  provision for credit losses      837      854      850      858    3,399      844      841      849      844    3,378

Securities gains                    51       --       20        3       74       12        4        4       13       33

Other noninterest income           644      809      823      887    3,163      601      771      615      611    2,598
-----------------------------------------------------------------------------------------------------------------------
                                 1,532    1,663    1,693    1,748    6,636    1,457    1,616    1,468    1,468    6,009

Noninterest expense                997    1,017    1,042    1,073    4,129      904    1,025      873      913    3,715
-----------------------------------------------------------------------------------------------------------------------
Income before income taxes         535      646      651      675    2,507      553      591      595      555    2,294

Applicable income taxes            212      253      250      260      975      219      244      243      221      927
-----------------------------------------------------------------------------------------------------------------------
Net income                        $323     $393     $401     $415   $1,532     $334     $347     $352     $334   $1,367
=======================================================================================================================
Basic earnings per share          $.55     $.67     $.68     $.71    $2.61     $.57     $.60     $.62     $.58    $2.37

Diluted earnings per share         .53      .65      .66      .69     2.52      .55      .58      .60      .57     2.30
=======================================================================================================================
</TABLE>


                                                                              65
<PAGE>

Consolidated Average Balances/Interest Earned-Paid/Rates 1994-1998 (Unaudited)

<TABLE>
<CAPTION>
                                                                 1998                               1997
                                                             Interest                           Interest
December 31                                       Average      Earned/               Average      Earned/
Dollars in millions(a)                            Balance        Paid(b)    Rate     Balance        Paid(b)    Rate
===================================================================================================================
<S>                                               <C>          <C>          <C>      <C>          <C>          <C>  
Assets:
Interest-bearing deposits                         $   339      $   14       4.17%    $   141      $    7       4.96%
Federal funds sold and securities purchased                                                                   
  under agreements to resell                          302          15       5.29         423          23       5.44
Trading account securities                            331          20       5.97         259          15       5.79
Securities available for sale                       9,036         595       6.59       7,461         503       6.74
Securities held to maturity                            12           1       8.75          32           3       7.12
Nontaxable securities                               1,295          85       6.54       1,181          77       6.52
Loans(c)                                           66,419       5,700       8.58      60,076       5,214       8.68
Due from brokers/dealers                            3,765         184       4.89       2,884         133       4.62
Mortgages held for resale                           2,623         185       7.05       1,413         108       7.65
Assets held for disposition                           161           2       1.12         746          47       6.17
Foreclosed property and repossessed equipment          20          --         --          28          --         --
-------------------------------------------------------------------------------------------------------------------
   Total interest-earning assets                   84,303       6,801       8.07      74,644       6,130       8.21
===================================================================================================================
Accrued interest receivable                           487          --         --         473          --         --
Reserve for credit losses                          (1,509)         --         --      (1,454)         --         --
Other assets                                       14,727          --         --      12,997          --         --
-------------------------------------------------------------------------------------------------------------------
   Total assets                                   $98,008      $6,801         --     $86,660      $6,130         --
===================================================================================================================
Liabilities and stockholders' equity:                                                                         
Deposits                                                                                                      
  Savings                                         $28,540      $  674       2.36%    $27,478      $  619       2.25%
  Time                                             22,032       1,160       5.27      20,036       1,035       5.16
-------------------------------------------------------------------------------------------------------------------
   Total interest-bearing deposits                 50,572       1,834       3.63      47,514       1,654       3.48
===================================================================================================================
Short-term borrowings                               8,400         400       4.76       5,266         247       4.69
Due to brokers/dealers                              4,501         214       4.75       3,463         152       4.39
Long-term debt                                      6,261         448       7.15       4,608         338       7.34
-------------------------------------------------------------------------------------------------------------------
   Total interest-bearing liabilities              69,734       2,896       4.15      60,851       2,391       3.93
-------------------------------------------------------------------------------------------------------------------
Net interest spread                                             3,905       3.92                   3,739       4.28
-------------------------------------------------------------------------------------------------------------------
Demand deposits and other                                                                                     
  noninterest-bearing time deposits                16,326          --         --      15,882          --         --
Other liabilities                                   3,056          --         --       2,338          --         --
-------------------------------------------------------------------------------------------------------------------
    Total liabilities                              89,116       2,896         --      79,071       2,391         --
-------------------------------------------------------------------------------------------------------------------
Stockholders' equity and dual                                                                                 
  convertible preferred stock                       8,892          --         --       7,589          --         --
-------------------------------------------------------------------------------------------------------------------
    Total liabilities and stockholders' equity    $98,008      $2,896         --     $86,660      $2,391         -- 
-------------------------------------------------------------------------------------------------------------------
Net interest margin                                                         4.63%                              5.01%
===================================================================================================================

<CAPTION>
                                                       1996                         1995                            1994
                                                     Interest                     Interest                        Interest
December 31                              Average     Earned/           Average    Earned/              Average    Earned/
Dollars in millions(a)                   Balance     Paid(b)  Rate     Balance    Paid(b)     Rate     Balance    Paid(b)     Rate
==================================================================================================================================
<S>                                      <C>         <C>      <C>      <C>        <C>         <C>      <C>        <C>         <C>  
Assets:                                                                                                                       
Interest-bearing deposits                $    82     $    4     4.39%  $   325    $   23        7.08%  $   292    $   14      4.79%
Federal funds sold and securities                                                                               
  purchased under agreements to resell       733         38     5.24       662        39        5.89       296        15      5.07
Trading account securities                   257         13     5.37       238        14        5.45       205        10      4.88
Securities available for sale             10,287        664     6.45    12,779       797        6.24    16,923     1,023      6.05
Securities held to maturity                  121          9     7.20     6,954       412        5.92     7,971       447      5.61
Nontaxable securities                        924         61     6.60       782        59        7.54       816        51      6.25
Loans(c)                                  57,046      4,910     8.61    52,164     4,688        8.99    44,754     3,668      8.20
Due from brokers/dealers                   2,179         95     4.35     1,927       109        5.64     1,606        70      4.36
Mortgages held for resale                  1,878        148     7.87     1,459       116        7.96     1,322        91      6.90
Assets held for disposition                1,253        122     9.77        --        --          --        --        --        -- 
Foreclosed property and repossessed                                                                             
  equipment                                   52         --       --        97        --          --       166        --        -- 
----------------------------------------------------------------------------------------------------------------------------------
   Total interest-earning assets          74,812      6,064     8.11    77,387     6,257        8.09    74,351     5,389      7.25
==================================================================================================================================
Accrued interest receivable                  481         --       --       539        --          --       533        --        -- 
Reserve for credit losses                 (1,493)        --       --    (1,489 )      --          --    (1,600)       --        -- 
Other assets                              12,938         --       --     9,804        --          --     8,859        --        -- 
----------------------------------------------------------------------------------------------------------------------------------
   Total assets                          $86,738     $6,064       --   $86,241    $6,257          --   $82,143    $5,389        -- 
==================================================================================================================================
Liabilities and stockholders' equity:                                                                                         
Deposits                                                                                                                      
  Savings                                $26,363     $  614     2.33%  $22,987    $  592        2.57%  $24,803    $  495      2.00%
  Time                                    20,971      1,140     5.44    20,133     1,135        5.64    15,310       676      4.41
----------------------------------------------------------------------------------------------------------------------------------
   Total interest-bearing deposits        47,334      1,754     3.70    43,120     1,727        4.00    40,113     1,171      2.92
==================================================================================================================================
Short-term borrowings                      6,351        311     4.91    14,807       815        5.50    15,807       636      4.02
Due to brokers/dealers                     2,645        111     4.20     2,341       119        5.08     1,821        74      4.06
Long-term debt                             5,486        390     7.10     6,581       478        7.26     5,383       364      6.76
----------------------------------------------------------------------------------------------------------------------------------
   Total interest-bearing liabilities     61,816      2,566     4.15    66,849     3,139        4.69    63,124     2,245      3.56
----------------------------------------------------------------------------------------------------------------------------------
Net interest spread                                   3,498     3.96               3,118        3.40               3,144      3.69
----------------------------------------------------------------------------------------------------------------------------------
Demand deposits and other                                                                                                     
  noninterest-bearing time deposits       15,042         --       --    10,910        --          --    11,227        --        -- 
Other liabilities                          2,511         --       --     1,619        --          --     1,773        --        -- 
----------------------------------------------------------------------------------------------------------------------------------
    Total liabilities                     79,369      2,566       --    79,378     3,139          --    76,124     2,245        -- 
----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity and dual                                                                                                 
  convertible preferred stock              7,369         --       --     6,863        --          --     6,019        --        -- 
----------------------------------------------------------------------------------------------------------------------------------
    Total liabilities and stockholders'                                                                         
      equity                             $86,738     $2,566       --   $86,241    $3,139          --   $82,143    $2,245        -- 
----------------------------------------------------------------------------------------------------------------------------------
Net interest margin                                             4.68%                           4.03%                         4.23%
==================================================================================================================================
</TABLE>

(a)   The data in this table is presented on a fully taxable equivalent basis.
      The tax-equivalent adjustment is based upon the applicable federal and
      state income tax rates.

(b)   Includes fee income of $272 million, $210 million, $165 million, $110
      million and $108 million for the years ended December 31, 1998, 1997,
      1996, 1995 and 1994, respectively.

(c)   Nonperforming loans are included in average balances used to determine
      rates.

Common Stock Price and Dividend Information(a) (Unaudited)

<TABLE>
<CAPTION>
                                             1998                                              1997
By quarter                 1         2         3         4      Year         1         2         3         4      Year
======================================================================================================================
<S>                  <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>    
Stock Price

  High               $ 42.53   $ 45.00   $ 44.22   $ 44.69   $ 45.00   $ 31.38   $ 32.91   $ 35.38   $ 37.56   $ 37.56

  Low                  34.31     39.00     32.78     31.69     31.69     24.81     27.75     31.69     30.97     24.81
----------------------------------------------------------------------------------------------------------------------
Dividends declared      .245      .245      .245      .270      1.00      .225      .225      .225      .245       .92

Dividends paid          .245      .245      .245      .245       .98      .225      .225      .225      .225       .90
======================================================================================================================
</TABLE>

(a)   Fleet's common stock is listed on the New York Stock Exchange (NYSE). The
      table above sets forth, for the periods indicated, the range of high and
      low sale prices per share of Fleet's common stock on the composite tape
      and dividends declared and paid per share. All per common share data for
      all periods presented reflects the two-for-one common stock split which
      was effective October 7, 1998.

Loan Maturity (Unaudited)

December 31, 1998                     Within      1 to 5     After 5
Dollars in millions                   1 Year       Years       Years       Total
================================================================================
Commercial and industrial            $11,409     $16,537     $ 9,221     $37,167

Residential real estate                1,594       3,935       3,785       9,314

Consumer                               4,451       5,880       2,985      13,316

Commercial real estate:

  Construction                           331         480         268       1,079

  Interim/permanent                    1,318       1,912       1,065       4,295

Lease financing                          672       3,465          88       4,225
--------------------------------------------------------------------------------
Total                                $19,775     $32,209     $17,412     $69,396
================================================================================

Interest Sensitivity of Loans Over One Year (Unaudited)

December 31, 1998                Predetermined           Floating
Dollars in millions             Interest Rates     Interest Rates          Total
================================================================================
1 to 5 years                          $  9,315           $ 22,894       $ 32,209

After 5 years                            4,014             13,398         17,412
--------------------------------------------------------------------------------
Total                                 $ 13,329           $ 36,292       $ 49,621
================================================================================


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